George earns $50,000 business profit per year by selling donuts. He pays $12,000 per year in rent to his Uncle Fred for the building in which his business is located. If his Uncle Fred gives him the building, then George's

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Quizplus · Accepted Answer

Economic profit takes into account both explicit costs (like rent) and implicit costs (like the opportunity cost of using resources). If Uncle Fred gives George the building, the explicit cost of rent ($12,000) disappears, but the implicit cost of not renting out the building to someone else (or selling it) for $12,000 arises. Therefore, George's economic profit remains unchanged because the decrease in explicit costs is offset by an increase in implicit costs.

George Earns $50,000 Business Profit Per Year by Selling Donuts