Jane decides to open her own business and earns $50,000 in accounting profit the first year.When deciding to open her own business she turned down three separate job offers with annual salaries of $30,000,$40,000,and $45,000.What is Jane's economic profit from running her own business?

Question

Quizplus · Accepted Answer

Economic profit is accounting profit minus implicit costs. Implicit costs are the costs of resources that the business owner provides to the business. In this case, the implicit costs are the salaries that Jane could have earned if she had taken one of the job offers. The highest salary that Jane could have earned is $45,000. Therefore, Jane's economic profit is $50,000 - $45,000 = $5,000.

Jane Decides to Open Her Own Business and Earns $50,000