Refer to Scenario 7.3 below to answer the question(s) that follow.
SCENARIO 7.3: Upon graduating with an accounting degree, you open your own accounting firm of which you are the sole employee. To start the firm you passed on a job offer with a large accounting firm that offered you a salary of $60,000 annually. Last year you earned a total revenue of $100,000. Rent and supplies last year were $50,000.
-Refer to Scenario 7.3. Your annual economic profit is
A) -$10,000.
B) $40,000.
C) $50,000.
D) $100,000.

Question

Quizplus · Accepted Answer

Economic profit is calculated as total revenue minus total costs, including opportunity costs. The opportunity cost here is the $60,000 salary you passed up. So, $100,000 (revenue) - $50,000 (rent and supplies) - $60,000 (opportunity cost) = -$10,000.