Amal gives up a salary of $80,000 per year to start his company. He invests $50,000 of his savings in his company, savings that had been earning him $4,000 per year in interest. During Amal's first year in business, total revenue is $300,000, and his explicit financial costs are $225,000. What is Amal's economic profit from his first year in business?
A)-$59.000
B)-$9,000
C)$71,000
D)$75,000

Question

Quizplus · Accepted Answer

Amal's economic profit is calculated by subtracting both explicit and implicit costs from total revenue. Explicit costs are $225,000. Implicit costs include the forgone salary of $80,000 and the forgone interest of $4,000, totaling $84,000. Therefore, total costs (explicit + implicit) are $225,000 + $84,000 = $309,000. Subtracting this from the total revenue of $300,000 gives an economic profit of -$9,000.

Amal Gives Up a Salary of $80,000 Per Year to Start