The following is cost information for the Creamy Crisp Donut Company.Entrepreneur's potential earnings as a salaried worker = $50,000Annual lease on building = $22,000Annual revenue from operations = $380,000Payments to workers = $120,000Utilities (electricity, water, disposal)costs = $8,000Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000Entrepreneur's forgone interest on personal funds used to finance the business = $6,000Creamy Crisp's economic profit is
A)$286,000.
B)$150,000.
C)$230,000.
D)$94,000.

Question

Quizplus · Accepted Answer

Economic profit is calculated by subtracting both explicit and implicit costs from total revenue. Here, explicit costs include payments to workers ($120,000), lease on building ($22,000), and utilities ($8,000), totaling $150,000. Implicit costs include the entrepreneur's potential earnings as a salaried worker ($50,000), forgone interest on personal funds ($6,000), and the value of the entrepreneur's talent in the next best activity ($80,000), totaling $136,000. Adding explicit and implicit costs gives $286,000 in total costs. Subtracting this from the annual revenue ($380,000) results in an economic profit of $94,000.

The Following Is Cost Information for the Creamy Crisp Donut