Suppose that a small business takes in monthly revenue of $100,000. Labor, rental, energy, and other purchased input costs are $70,000. The owner/entrepreneur could earn $5,000 per month in another job, and the owner/entrepreneur could get a return of $5,000 each month if she sold her business and invested the net proceeds in a financial asset, such as a treasury bond. Which of the following correctly describes her monthly economic profit

Question

Business

Tamara Skinner

26 April, 23:01

Suppose that a small business takes in monthly revenue of $100,000. Labor, rental, energy, and other purchased input costs are $70,000. The owner/entrepreneur could earn $5,000 per month in another job, and the owner/entrepreneur could get a return of $5,000 each month if she sold her business and invested the net proceeds in a financial asset, such as a treasury bond. Which of the following correctly describes her monthly economic profit

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Answers (1)

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Marely Schaefer · Answer 1

The answer is: $20,000

Explanation:

Economic profit can be calculated using the following formula:

Economic profit = total revenues - (explicit costs + implicit costs)

total revenue = $100,000 explicit costs = $70,000 implicit costs = $5,000 (opportunity cost of another job) + $5,000 (opportunity cost of another investment) = $10,000

Economic profit = $100,000 - ($70,000 + $10,000) = $20,000