Imagine Tom's annual salary as an assistant store manager is $30,000. He also owns a building that he rents out, earning $10,000 annually, and he has financial assets that generate $1,000 per year in interest. One day, after deciding to be his own boss, he quits his job, evicts his tenants, and uses his financial assets to establish a bicycle repair shop in the building he owns. To run the business, he outlays $15,000 in cash to cover all the costs involved with running the business and earns revenues of $50,000. What is Tom's economic profit?
A)$35,000
B)$50,000
C)$24,000
D)−$6,000

Question

Quizplus · Accepted Answer

Tom's economic profit is calculated by subtracting both explicit and implicit costs from total revenue. His explicit costs are $15,000. His implicit costs include the forgone salary ($30,000), forgone rental income ($10,000), and forgone interest income ($1,000), totaling $41,000. Total costs are $56,000 ($15,000 + $41,000). With revenues of $50,000, his economic profit is $50,000 - $56,000 = -$6,000.

Imagine Tom's Annual Salary as an Assistant Store Manager Is