Scenario 8.1: Ana used to work for a Advertising agency where she earned a yearly salary of $60,000.She got tired of working for another company so she opened his own Advertising company.Ana now pays her designer $40,000 per year and spends $25,000 for rent and utilities.She earns $120,000 in annual revenue.
-Refer to Scenario 8.1.Ana's economic profit is:

Question

Quizplus · Accepted Answer

Ana's economic profit is calculated by subtracting both explicit and implicit costs from her total revenue. Her explicit costs are $40,000 (designer) + $25,000 (rent and utilities) = $65,000. Her implicit cost is the $60,000 salary she gave up. Total costs = $65,000 + $60,000 = $125,000. Economic profit = $120,000 (revenue) - $125,000 (total costs) = -$5,000.