Suppose Juliana owns a small business making handbags. Each month she makes 18 handbags, which she sells for $100 each. The materials used to make each handbag cost $50. In addition, Juliana uses a spare room in her house to make the handbags and store her supplies. If she were not using the spare room for her business, she would use it as a guest room, an option that Juliana would value at $250 per month. If Juliana weren't making handbags, she would work at Trader Joe's earning $800 per month. What is Juliana's economic profit each month?
A)−$150
B)$900
C)$650
D)$750

Question

Quizplus · Accepted Answer

Economic profit equals total revenue minus explicit cost minus implicit cost. Juliana's total revenue is 18 × $100 = $1,800, and her explicit cost is 18 × $50 = $900, and her implicit cost is $250 + $800 = $1,050. Thus, Julian's economic profit is = $1,800 - $900 - $1,050 = -$150 per month.

Suppose Juliana Owns a Small Business Making Handbags