Lashondra is the owner/operator of an interior design firm.Last year she earned $400,000 in total revenue.Her explicit costs were $200,000 (assume that this amount represents the total opportunity cost of these resources).During the year she received offers to work for other design firms.One offer would have paid her $120,000 per year and the other would have paid her $130,000 per year.Lashondra's economic profit is equal to
A)-$50,000.
B)$70,000.
C)$0.
D)$200,000.

Question

Quizplus · Accepted Answer

First, we need to calculate Lashondra's total explicit and implicit costs. Her explicit costs were $200,000, but she also had an opportunity cost of not accepting the other job offers. Therefore, her implicit costs were either $120,000 or $130,000 (depending on which offer she would have accepted). So her total costs were either $320,000 or $330,000.

Next, we need to calculate her economic profit. Economic profit is total revenue minus total costs (explicit and implicit). So:

- If her total costs were $320,000: Economic profit = $400,000 - $320,000 = $80,000
- If her total costs were $330,000: Economic profit = $400,000 - $330,000 = $70,000

Therefore, Lashondra's economic profit is either $80,000 or $70,000, depending on which job offer she would have accepted. However, since the question asks for the economic profit, we choose the highest number which is B)$70,000.

Lashondra Is the Owner/operator of an Interior Design Firm