James used $200,000 from his savings account that paid an annual interest of 10% to purchase a hardware store.After one year,James sold the business for 300,000. His economic profit is:

Question

​James used $200,000 from his savings account that paid an annual interest of 10% to purchase a hardware store.After one year,James sold the business for 300,000. His economic profit is:

Quizplus · Accepted Answer

James's economic profit is calculated by subtracting both the explicit and implicit costs from the total revenue. The explicit gain from selling the business is $300,000 - $200,000 = $100,000. However, the implicit cost, or the opportunity cost of not earning interest in the savings account, is $200,000 * 10% = $20,000. Therefore, the economic profit is $100,000 (explicit gain) - $20,000 (implicit cost) = $80,000.

​James Used $200,000 from His Savings Account That Paid an Annual

James Used $200,000 from His Savings Account That Paid an Annual