Belinda is the owner of a department store.Last year,her total revenue was $525,000 and her total labor costs were $200,000.Her overhead expenses,including insurance and legal fees,were $175,000.The rent on the building was $45,000.Belinda could earn $105,000 per year working at a nearby department store.If her total revenue increases to $600,000 this year and all of her other expenses are held constant,we know that her economic profit is now

Question

Quizplus · Accepted Answer

To calculate economic profit, we need to deduct all explicit and implicit costs from the total revenue.

Explicit Costs: 
Labor costs = $200,000 
Overhead expenses = $175,000 
Rent = $45,000 
Total Explicit Costs = $420,000

Implicit Costs: 
Belinda's forgone salary = $105,000

Total Costs = Explicit Costs + Implicit Costs = $525,000

Total Revenue for current year = $600,000

Economic Profit = Total Revenue - Total Costs = $600,000 - $525,000 = $75,000

Therefore, the best choice is A) $75,000.

Belinda Is the Owner of a Department Store