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 total revenues exceed its total costs, including a normal profit, by
A)$286,000.
B)$150,000.
C)$230,000.
D)$94,000.

Question

Quizplus · Accepted Answer

The total economic cost includes explicit costs (lease, payments to workers, utilities) and implicit costs (entrepreneur's potential earnings, forgone interest, and value of talent). Total explicit costs = $22,000 + $120,000 + $8,000 = $150,000. Total implicit costs = $50,000 + $80,000 + $6,000 = $136,000. Total economic cost = $150,000 + $136,000 = $286,000. Total revenue = $380,000. Therefore, total revenues exceed total costs by $380,000 - $286,000 = $94,000.

The Following Is Cost Information for the Creamy Crisp Donut