Sally leaves her $24,000 secretarial position with a company and invests her savings of $15,000 (on which she was earning 6 percent interest) in her own Ready Sec agency.After expenses, her net income was $28,900.Her economic profit was
A)$4,900.
B)$4,000.
C)$28,900.
D)−$10,100.

Question

Quizplus · Accepted Answer

Economic profit is calculated by subtracting both explicit and implicit costs from total revenue. Sally's implicit costs include her foregone salary ($24,000) and the interest she would have earned on her savings ($15,000 * 6% = $900). Her total implicit costs are $24,900. Her net income is $28,900, so her economic profit is $28,900 - $24,900 = $4,000.

Sally Leaves Her $24,000 Secretarial Position with a Company and Invests