Joanne left her last job, in which she was earning $60,000, in order to form her own consulting business. Her revenues for the first year of consulting were $210,000. During that year, she hired two assistants for $25,000 each and spent $25,000 on office equipment. In addition, she incurred $75,000 in miscellaneous expenses. Her economic profit that first year was

Question

Quizplus · Accepted Answer

Economic profit is revenue minus explicit and implicit costs. Joanne's revenue was $210,000. Her explicit costs were $25,000 for each assistant, $25,000 for office equipment, and $75,000 for miscellaneous expenses, for a total of $150,000. Her implicit cost is her foregone salary of $60,000. So her economic profit is $210,000 - $150,000 - $60,000 = $0.

Joanne Left Her Last Job, in Which She Was Earning