Jada left a job that paid $40,000 per year. At the end of her first year in business, her revenues summed to $90,000, and her explicit costs were $50,000. Also, in order to fund her business startup, Jada cashed in a $20,000 certificate of deposit that was providing an annual yield of 5%. Ceteris paribus, Jada earns _____ profit.

Question

Quizplus · Accepted Answer

Jada's economic profit is negative because her opportunity costs (foregone salary of $40,000 and $1,000 interest from the certificate) exceed her accounting profit ($90,000 revenue - $50,000 explicit costs = $40,000).

Jada Left a Job That Paid $40,000 Per Year