You decide to quit your $60,000-per-year job as an information technology specialist and illustrate children's books.At the end of the first year of illustrating,you have earned $20,000.You also spent $5,000 for paint and paper.Your economic profit in the first year as an illustrator is:
A)$15,000.
B)$20,000.
C)-$40,000.
D)-$45,000.

Question

Quizplus · Accepted Answer

Economic profit is calculated by subtracting both explicit (direct) and implicit (opportunity) costs from total revenue. Here, the explicit costs are $5,000 for paint and paper, and the implicit cost is the forgone salary of $60,000. The total revenue from illustrating is $20,000. Thus, economic profit = $20,000 - $5,000 (explicit costs) - $60,000 (implicit costs) = -$45,000.

You Decide to Quit Your $60,000-Per-Year Job as an Information