Tom quit his $65,000 a year corporate lawyer job to open up his own law practice. In Tom's first year in business his total revenue equaled $150,000. Tom's explicit cost during the year totaled $85,000. What is Tom's economic profit for his first year in business?

Question

Quizplus · Accepted Answer

Economic profit is calculated as total revenue minus both explicit and implicit costs. Tom's implicit cost is the $65,000 salary he gave up. So, economic profit = $150,000 (revenue) - $85,000 (explicit costs) - $65,000 (implicit cost) = $0.

Tom Quit His $65,000 a Year Corporate Lawyer Job to Open