Homer's Holesome Donuts has determined that its profit-maximizing quantity is 10,000 donuts per year. Homer's earns $12,000 in revenue from the sale of those donuts. Homer's has two costs. First he pays $16,000 in annual rental payments for its five-year lease on its store. Second Homer incurs an additional cost of $5,000 for ingredients. Homer's economic profit is equal to

Question

Quizplus · Accepted Answer

Economic profit is calculated as total revenue minus total costs (including both explicit and implicit costs). Homer's total revenue is $12,000, and his total costs are $16,000 (rental) + $5,000 (ingredients) = $21,000. Therefore, the economic profit is $12,000 - $21,000 = -$9,000, indicating an economic loss of $9,000.

Homer's Holesome Donuts Has Determined That Its Profit-Maximizing Quantity Is