Monica quit her $40,000 per year job, purchased a building that was previously rented by the operator of a candy store for $1,500 per month, and used the space to breed and sell tropical fish. In her first year she made a business profit of $60,000. What was her economic profit?

Question

Quizplus · Accepted Answer

Economic profit considers both explicit and implicit costs. Monica's implicit costs include her foregone salary ($40,000) and the rental income she could have earned from the building ($1,500 x 12 = $18,000). Her total implicit costs are $58,000. Subtracting these from her business profit of $60,000 gives an economic profit of $2,000.

Monica Quit Her $40,000 Per Year Job, Purchased a Building