Suppose a lawyer leaves his $50, 000-a-year job and starts his own firm breeding pit bulls.In the first year, his accounting profit is $70, 000.The lawyer finances his new business with $100, 000 from his savings account, which had earned 10 percent interest.His economic profit is

Question

Quizplus · Accepted Answer

Economic profit is calculated by subtracting both explicit and implicit costs from total revenue. The lawyer's implicit costs include the $50,000 salary he gave up and the $10,000 interest he would have earned from his savings. Therefore, his economic profit is $70,000 - $50,000 - $10,000 = $10,000.

Suppose a Lawyer Leaves His $50, 000-A-Year Job and Starts