Suppose Winston's annual salary as an accountant is $60,000 and his financial assets generate $4,000 per year in interest. One day, after deciding to be his own boss, he quits his job and uses his financial assets to establish a consulting business, which he runs out of his home. He outlays $8,000 in cash to cover all the costs involved with running the business and earns revenues of $150,000. What is Winston's economic profit?

Question

Quizplus · Accepted Answer

Winston's economic profit is calculated by subtracting both explicit and implicit costs from total revenue. Explicit costs are $8,000. Implicit costs include his foregone salary of $60,000 and the interest of $4,000 he would have earned from his financial assets. Total costs are $8,000 + $60,000 + $4,000 = $72,000. Economic profit is $150,000 - $72,000 = $78,000.

Suppose Winston's Annual Salary as an Accountant Is $60,000 and His