A small business owner earns $50,000 in revenue annually. The explicit annual costs equal $30,000. The owner could work for someone else and earn $25,000 annually. The owner's business profit is ________ and the economic profit is ________.

Question

Quizplus · Accepted Answer

The business profit is calculated as revenue minus explicit costs, which is $50,000 - $30,000 = $20,000. However, to calculate economic profit, we need to consider the opportunity cost of the owner's time. The owner could work for someone else and earn $25,000 annually, so the economic profit is $20,000 (revenue - explicit costs) - $25,000 (opportunity cost) = -$5,000. Therefore, the best choice is B as it represents the economic reality of the business.

A Small Business Owner Earns $50,000 in Revenue Annually