A small business owner earns $75,000 in revenue annually. The explicit annual costs equal $40,000. The owner could work for someone else and earn $20,000 annually. The owner's accounting profit is ________ and owner's economic profit is ________.

Question

Quizplus · Accepted Answer

The accounting profit is calculated by subtracting explicit costs from revenue, which is $75,000 - $40,000 = $35,000. The economic profit also considers opportunity costs, which in this case includes the $20,000 the owner could earn elsewhere. Thus, economic profit is $35,000 (accounting profit) - $20,000 (opportunity cost) = $15,000. However, there seems to be a mistake in my explanation regarding the options provided; the correct economic profit based on my calculation should be $15,000, not $10,000 as indicated in option B. Given the options, B is the closest to the correct explanation, but please note the discrepancy in the economic profit calculation.

A Small Business Owner Earns $75,000 in Revenue Annually