Scenario 5.1
A dentist's practice is organized as a sole proprietorship. Last year the dentist's total revenue was $320,000 and total costs were $250,000. The dentist left a job paying $112,000 a year to start the sole proprietorship.
-According to the information in Scenario 5.1, how much economic profit did the dentist make last year?
A) $320,000
B) $208,000
C) $112,000
D) $70,000
E) -$42,000

Question

Quizplus · Accepted Answer

Economic profit is calculated by subtracting both explicit and implicit costs from total revenue. The implicit cost here is the $112,000 salary the dentist gave up. So, economic profit = $320,000 (revenue) - $250,000 (explicit costs) - $112,000 (implicit cost) = -$42,000.

Scenario 5.1 A Dentist's Practice Is Organized as a Sole Proprietorship. Last