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15 April, 11:53

Tom quit his $65,000 a year corporate lawyer job to open up his own law practice. In Tom's first year in business his total revenue equaled $150,000. Tom's explicit cost during the year totaled $85,000. What is Tom's economic profit for his first year in business?

A) $0

B) $85, 000

C) $20, 000

D) $65, 000

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  1. 15 April, 13:51
    0
    Given:

    Implicit Cost = $65,000

    Total revenue = $150,000

    Explicit cost = $85,000

    Here, we'll compute the economic profit for the first year as:

    Economic profit = Total revenue - (Explicit cost + Implicit Cost)

    Economic profit = $150,000 - ($85,000 + $65,000)

    Economic profit = $0

    ∴ Tom's economic profit for his first year in business will be $0

    The correct option is (a).
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