Portia is graduating from dental school and has a job offer with a salary of $140,000 from a chain of dental clinics. However, she wants to set up her own dental practice instead. To do this, she would need to invest her own funds in new equipment that would cost $80,000-funds that have been earning her a return of 10% per year. Portia estimates that her practice would have revenue of $470,000 per year and annual explicit financial costs of $330,000. What would Portia's economic profit or loss be if she sets up her own practice?
A)a loss of $80,000
B)a loss of $8,000
C)a profit of $132,000
D)a profit of $322,000

Question

Quizplus · Accepted Answer

Portia's economic profit is calculated by subtracting both explicit and implicit costs from her revenue. Her explicit costs are $330,000. Her implicit costs include the foregone salary of $140,000 and the foregone return on her investment, which is $8,000 (10% of $80,000). Therefore, her total costs are $330,000 + $140,000 + $8,000 = $478,000. Her revenue is $470,000, leading to an economic loss of $8,000.

Portia Is Graduating from Dental School and Has a Job