Ben quit his job as an economics professor to become a golf professional. He gave up his $30,000 salary and invested his retirement fund of $50,000 (which was earning 10 percent interest) in this venture. After all expenses, his net winnings were $35,000. Ben's economic profits were

Question

Quizplus · Accepted Answer

Economic profit is the difference between total revenue and total cost, including both explicit and implicit costs. Ben's explicit costs are his expenses, which are $35,000. His implicit costs are the opportunity cost of his time and the interest he could have earned on his retirement fund. The opportunity cost of his time is the salary he gave up, which is $30,000. The interest he could have earned on his retirement fund is $5,000 (10% of $50,000). Therefore, Ben's total implicit costs are $35,000. His total costs are $70,000 ($35,000 + $35,000). Since his total revenue is also $35,000, his economic profit is zero.

Ben Quit His Job as an Economics Professor to Become