Situation 21-4
Joe is the owner-operator of Joe's Haircuts Unlimited. Last year he earned $200,000 in total revenues and paid $125,000 to his employees and suppliers. During the course of the year, he received three offers to work for other barbers, with the highest offer being $50,000 per year.Refer to Situation 21-4. What are Joe's economic profits?

Question

Situation 21-4
Joe is the owner-operator of Joe's Haircuts Unlimited. Last year he earned $200,000 in total revenues and paid $125,000 to his employees and suppliers. During the course of the year, he received three offers to work for other barbers, with the highest offer being $50,000 per year.Refer to Situation 21-4.  What are Joe's economic profits?

Quizplus · Accepted Answer

Joe's economic profit is calculated by subtracting both explicit and implicit costs from total revenue. Explicit costs are $125,000, and the implicit cost (opportunity cost of the next best alternative) is $50,000. Thus, economic profit = $200,000 - ($125,000 + $50,000) = $25,000.

Situation 21-4 Joe Is the Owner-Operator of Joe's Haircuts Unlimited. Last Year