Suppose that the cost of operating a taxicab is $25,000/year and that a cab in full-time operation will collect $35,000/year in fares.
-Refer to the information above.If taxi medallions (licences)are issued by the city government and cannot be sold,a taxi owner would earn ________ per year in economic profit.
A) $0.
B) $10,000.
C) $25,000.
D) $35,000.
E) $60,000.

Question

Quizplus · Accepted Answer

Economic profit is the total revenue minus total cost, including both explicit (out-of-pocket) costs and implicit (opportunity) costs. In this scenario, the explicit costs are $25,000 and the total revenue is $35,000, so the cab owner's accounting profit would be $10,000 (total revenue minus explicit costs). However, to calculate economic profit, we also need to include implicit costs, such as the opportunity cost of the owner's time and the cost of the medallion (if it is not being sold). Without more information, it's difficult to estimate these costs precisely, but it's likely that they would at least partially offset the accounting profit of $10,000, resulting in an economic profit closer to zero. Therefore, the best answer is B ($10,000), with the caveat that it's an estimate and could vary depending on the specifics of the situation.

Suppose That the Cost of Operating a Taxicab Is $25,000/year