Suppose the entrepreneur could earn $1,000 as an employee elsewhere. This means the economic profit is
A) -$925.
B) -$75.
C) -$1,000.
D) $0.

Question

Suppose the entrepreneur could earn $1,000 as an employee elsewhere. This means the economic profit is
A) -$925. 
B) -$75. 
C) -$1,000. 
D) $0.

Quizplus · Accepted Answer

Economic profit is equal to total revenue minus total opportunity cost (explicit and implicit costs). In this case, the total revenue is $25, so the economic profit is $25 - $1,000 = -$975. Because the economic profit is negative, the entrepreneur should not pursue this opportunity and instead work as an employee elsewhere where they can earn a positive economic profit of $1,000. Option B is the best choice because it reflects the negative economic profit and the decision not to pursue the opportunity.

Suppose the Entrepreneur Could Earn $1,000 as an Employee Elsewhere