Suppose that Milo left a job, where he earned a salary of $50,000 per year, in order to open an all-natural soap business. His insurance cost is $5,000; his material cost is $25,000; his lease payments are $10,000; and his revenue is $90,000. Milo's economic profit is

Question

Quizplus · Accepted Answer

Economic profit is calculated as total revenue minus total costs, including both explicit and implicit costs. Milo's explicit costs are $5,000 (insurance) + $25,000 (materials) + $10,000 (lease) = $40,000. His implicit cost is the $50,000 salary he gave up. Total costs are $40,000 + $50,000 = $90,000. His revenue is $90,000, so his economic profit is $90,000 - $90,000 = $0.

Suppose That Milo Left a Job, Where He Earned a Salary