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. Is Joe earning a normal profit?

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.  Is Joe earning a normal profit?

Quizplus · Accepted Answer

Joe's economic profit is calculated by subtracting both explicit costs ($125,000) and implicit costs (the highest offer of $50,000) from total revenue ($200,000). This results in an economic profit of $25,000, indicating he is earning an above-normal profit.

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