How to calculate a cafe's profit

In this work we want to calculate how much a cafe should earn to have a normal profit. We will take John's cafe as an example.

John's annual accounting profit is 7 500 $ (unless further costs of depreciation need to be included).

AP = 50 000 — 20 000 — 5 000 — 1 000 — 1 050 — 5 000 — 10 000

AP = 50 000 — 42 050 = 7 500

The 10 000 $ John could earn as a recycler constitutes an implicit cost of running the cafe. If John had no preference as to his occupation, this would mean that his economic profit is EP = 7 500 — 10 000 = -2 500. The cafe would not be making economic profit. However, John has a preference in running the cafe (it fits his lifestyle for example), which is worth to him an additional 2 750. If we understand John willingness to 'pay' 2 750 $ as a monetarized valuation of his satisfaction of running the cafe, then his new economic profit would be:

EP = 7 500 — 11 000 + 2 750 = -750 ; The cafe is no longer making economic profit (he would still be making economic profits in the alternative understanding of the content of the exercise, with his tolerance of negative accounting profit diminished by 1 000 to 1 750 $)

The new accounting profit is:

AP = 50 000 — 20 000 — 5 000 — 1 000 — 1 050 — 5 000 = 17 500

John's accounting profit has increased by 10 000. According to the text of this question John only pays for the interest on the loan and does not repay the loan itself, an unsual phenomenon. If John has no personal preference as to be a recycler or cafe-manager, the cafe must earn an additional 2 500 $ per year (in relation to the initial situation), in order to earn a normal profit.

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