Suppose Angelo Sessa, owner of Sezz Medi Brick Oven Pizza in NYC, earns $350,000 in revenue per year. He spends $800 a month on ash wood for his stove, $2000 a month on rent, and $1500 a month on ingredients. He used to be a lawyer and earned $240,000 a year before he opened up Sezz Medi. Normal profit for a pizza business is $30,000. What is Angelo's economic profit?

Question

Quizplus · Accepted Answer

Angelo's economic profit is his total revenue minus his total costs, including both explicit and implicit costs. His explicit costs are his ash wood, rent, and ingredients, which total $4300 per month or $51,600 per year. His implicit cost is his foregone salary as a lawyer, which is $240,000 per year. So his total costs are $291,600 per year. His economic profit is therefore $350,000 - $291,600 = $58,400.

Suppose Angelo Sessa, Owner of Sezz Medi Brick Oven Pizza