Waterworks Irrigation was a startup that was open for only one year of operation. During that year, it collected $175,000 in revenue and spent $50,000 on trucks, irrigation supplies, employees, and utilities. The owner of the firm, Cosmo, spent $100,000 of his own money to buy an office building and set up the office (instead of buying bonds and earning a 10% annual rate of return), which he later sold at the end of the year for $100,000. The firm's economic profit is:
A)$35,000.
B)$125,000.
C)$115,000.
D)$25,000.

Question

Quizplus · Accepted Answer

To calculate economic profit, we need to take into account the opportunity cost of using Cosmo's own money to set up the office rather than investing it in bonds and earning a 10% annual rate of return. 
Revenue - (Expenses + Opportunity Cost) = Economic Profit 
$175,000 - ($50,000 + $10,000) = $115,000 
Therefore, the economic profit of Waterworks Irrigation is $115,000.

Waterworks Irrigation Was a Startup That Was Open for Only