Problem -

Gomez runs a small pottery firm. He hires one helper at $11,000 per year, pays annual rent of $6,000 for his shop and spends $22,000 per year on materials. He has $40,000 of his own funds invested in equipment (pottery wheels, kilns, and so forth) that could earn him $4,500 per year if alternatively invested. He has been offered $17,000 per year to work as a potter for a competitor. He estimates his entrepreneurial talents are worth $3,500 per year. Total annual revenue from pottery sales is $70,000.

a. Calculate the accounting profit for Gomez's pottery firm.

b. Now calculate Gomez's economic profit.