Until recently,Rosemarie worked as an accountant,earning $30,000 annually.Then she inherited a piece of commercial real estate that had been renting for $12,000 annually.Rosemarie decided to leave her job and operate a Peruvian restaurant in the space she inherited.At the end of the first year,her books showed total revenues of $260,000 and total costs of $230,000 for food,utilities,cooks,and other supplies.Her economic profit at the end of one year is:

Question

Quizplus · Accepted Answer

Economic profit is calculated by subtracting both explicit (out-of-pocket costs) and implicit (opportunity costs) from total revenues. Here, explicit costs are $230,000 and the implicit costs include her forgone salary of $30,000 and the forgone rent of $12,000, totaling $42,000. Subtracting both explicit ($230,000) and implicit costs ($42,000) from her total revenues ($260,000) gives an economic profit of -$12,000.

Until Recently,Rosemarie Worked as an Accountant,earning $30,000 Annually