Sophia has a business using no owned capital and makes an accounting profit of $52,000 a year. Sophia could have worked for Verizon Wireless with a pay of $35,000 a year, but she would not have had time to run her business. The economic profit from Sophia's business per year is
A) $87,000.
B) $35,000.
C) $17,000.
D) −$17,000.

Question

Quizplus · Accepted Answer

Economic profit is calculated by subtracting the opportunity cost from the accounting profit. Sophia's opportunity cost is the $35,000 she could have earned at Verizon. Thus, her economic profit is $52,000 - $35,000 = $17,000.

Sophia Has a Business Using No Owned Capital and Makes