Sue owns a baking company. The company's total revenue for a month is $4,000. The monthly costs of resources bought in the market and of resources owned by the firm are $2,000 and the monthly costs of resources supplied by the owner are $1,000. Sue's economic profit for the month is equal to
A) $2,000.
B) $3,000.
C) $1,000.
D) $4,000.

Question

Quizplus · Accepted Answer

Economic profit is calculated by subtracting both explicit (costs of resources bought in the market and of resources owned by the firm) and implicit costs (costs of resources supplied by the owner) from total revenue. Here, the total revenue is $4,000, explicit costs are $2,000, and implicit costs are $1,000. Thus, economic profit = $4,000 - $2,000 - $1,000 = $1,000.

Sue Owns a Baking Company