The table below provides the annual revenues and costs for a family- owned firm producing catered meals. $\begin{array}{|l|l|}
\hline \text { Total Revenues }(\$) & 500000 \
\hline & \
\hline \text { Total Costs }(\$) & \
\hline \text { wages and salaries } & 200000 \
\hline \text { risk- free return of } 6 \% \text { on owners' capital of } 250000 & 15000 \
\hline \text { rent } & 105000 \
\hline \text { depreciation of capital equipment } & 25000 \
\hline \text {-risk premium of } 8 \% \text { on owners' capital of } 250000 & 20000 \
\hline \text { - intermediate inputs } & 150000 \
\hline \text { forgone wages of owners in alternative employment } & 80000 \
\hline \text { - interest on bank loan } & 10000 \
\hline
\end{array}$ TABLE 7- 1
-Refer to Table 7- 1.The economic profits for this family- owned firm are
A)$0.
B)$10 000.
C)$115 000.
D)- $105 000.
E)- $10 000.

Question

Quizplus · Accepted Answer

Economic profit is calculated as total revenues minus total economic costs (explicit and implicit costs). Total costs include wages, risk-free return, rent, depreciation, risk premium, intermediate inputs, forgone wages, and interest. Total costs = $200,000 + $15,000 + $105,000 + $25,000 + $20,000 + $150,000 + $80,000 + $10,000 = $605,000. Economic profit = $500,000 - $605,000 = -$105,000.

The Table Below Provides the Annual Revenues and Costs for a Family-