Chloe gives piano lessons for $15 per hour. She also grows flowers, which she arranges and sells at the local farmer's market. One day she spends 4 hours planting $50 worth of seeds in her garden. Once the seeds have grown into flowers, she can sell them for $150 at the farmer's market. Chloe's accounting profits are
A)$100, and her economic profits are $40.
B)$100, and her economic profits are $15.
C)$40, and her economic profits are $100.
D)$15, and her economic profits are $140.

Question

Quizplus · Accepted Answer

Accounting profits are calculated by subtracting the explicit costs from the total revenue. In this case, Chloe's total revenue from selling flowers is $150, and her explicit cost (the cost of seeds) is $50, leading to accounting profits of $150 - $50 = $100. Economic profits take into account both explicit and implicit costs. The implicit cost here includes the opportunity cost of Chloe's time spent planting seeds, which is 4 hours at $15 per hour (her rate for giving piano lessons), totaling $60. Therefore, her economic profits are her total revenue ($150) minus all costs (explicit $50 + implicit $60), which equals $40.

Chloe Gives Piano Lessons for $15 Per Hour