Gerald is a freelance writer who could work for a newspaper at $25,000 a year but instead runs his own business making revenue of $40,000 a year.His only business expenses are $1,000 for writing materials and $12,000 for rent.What is Gerald's economic profit from working as a freelance writer?
A)$2,000
B)$28,000
C)$15,000
D)$25,000
E)$27,000

Question

Quizplus · Accepted Answer

Gerald's economic profit is calculated by subtracting both his explicit costs ($1,000 for materials and $12,000 for rent) and his implicit cost (the $25,000 salary he foregoes) from his revenue ($40,000). This results in an economic profit of $2,000.

Gerald Is a Freelance Writer Who Could Work for a Newspaper