Ed is a freelance writer who could work for a newspaper at $25,000 a year but instead works for himself for $41,000 a year. His only business expenses are $1,000 for writing materials and $12,000 for rent. Ed's normal profit is $1,000. Ed's economic profit from working as a freelance writer is

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Ed's economic profit is calculated by subtracting his total costs (including opportunity costs) from his revenue. His revenue is $41,000. His explicit costs are $1,000 for materials and $12,000 for rent, totaling $13,000. His implicit cost, the opportunity cost of not working for the newspaper, is $25,000. Adding his normal profit of $1,000, his total costs are $39,000. Therefore, his economic profit is $41,000 - $39,000 = $2,000.

Ed Is a Freelance Writer Who Could Work for a Newspaper