Suppose a sole proprietorship is earning total revenues of $100,000 and is incurring explicit costs of $75,000.If the owner could work for another company for $30,000 a year,we would conclude that:
A)the firm is incurring an economic loss.
B)implicit costs are $25,000.
C)the total economic costs are $100,000.
D)the individual is earning an economic profit of $25,000.

Question

Quizplus · Accepted Answer

To calculate economic profit, we need to subtract total economic costs from total revenues. Total revenue in this case is $100,000 and total economic costs include both explicit costs ($75,000) and implicit costs (the opportunity cost of the owner's time, which is $30,000). Total economic costs, therefore, are $105,000 ($75,000 + $30,000). Since total revenue is less than total economic costs, the firm is incurring an economic loss.

Suppose a Sole Proprietorship Is Earning Total Revenues of $100,000