Anne Teek works full time as the manager of her used furniture store in which she has invested $40,000. Last year, her total revenues were $90,000 and her costs were $60,000 for merchandise, gas, electricity, and other explicit-cost items. Ms. Teek pays herself a "competitive" salary of $30,000 per year. An economist would consider her profits for the year to be

Question

Quizplus · Accepted Answer

An economist would consider profits to be revenues minus explicit costs and the opportunity cost of any resources used in the business. In this case, the explicit costs were $60,000 and the salary of the owner was $30,000. The opportunity cost of the $40,000 invested in the store is the return that could have been earned if it were invested elsewhere. Therefore, the total cost is $60,000 + $30,000 + the opportunity cost of $40,000. Since total revenue was $90,000, the profits for the year would be $0 minus the opportunity cost of the $40,000 of capital invested in the store. So, the answer is C.

Anne Teek Works Full Time as the Manager of Her