You use $3,000 of your own money to start a dog-sitting service. During the first year you earn a 10% return on your investment. If the current interest rate on savings is 7%, you earn an economic profit of

Question

Quizplus · Accepted Answer

Economic profit is calculated by subtracting both explicit and implicit costs from total revenue. Here, the explicit profit is $300 (10% of $3,000). The implicit cost is the forgone interest from not investing the $3,000 in a savings account, which would be $210 (7% of $3,000). Therefore, the economic profit is $300 (explicit profit) - $210 (implicit cost) = $90.

You Use $3,000 of Your Own Money to Start a Dog-Sitting