Calculate the economic profit of the tree-trimming firm whose explicit and implicit expenses are shown. ms. tree has a total revenue of $98,000. ms. tree's economic profit and the entry or exit decision explicit costs per year payment on the loan on boom lift truck $12,000 gasoline $4,000 miscellaneous equipment $16,000 implicit costs earnings forgone by not working for mr. plow $45,000 the forgone income that the $50,000 invested in the boom lift truck could have earned if invested elsewhere

Given:

Ms. Tree's total revenue of $98,000.

explicit costs per year

payment on the loan on boom lift truck $12,000

gasoline $4,000

miscellaneous equipment $16,000

implicit costs

earnings forgone by not working for mr. plow $45,000

the forgone income that the $50,000 invested in the boom lift truck could have earned if invested elsewhere

Explicit cost = 12,000 + 4,000 + 16,000 = 32,000

Implicit cost = 45,000 + 50,000 = 95,000

Economic profit or loss is computed by getting the difference from the revenue received from a sale of an output and the opportunity cost of the inputs.

Revenue: 98,000

less: explicit cost: (32,000)

Accounting Profit 66,000

less: implicit cost (95,000)

Economic loss (29,000)

There is an economic loss because Ms. Tree would have earned more had she stayed and worked for Mr. Plow and invested the money used in buying the boom lift truck.