Campbell recently began running his brother's lumber mill. Last month he took in $10,000 in sales revenue and paid $6,800 in out-of-pocket costs. He made an economic profit last month if his implicit costs were:

Question

Quizplus · Accepted Answer

Implicit costs are the opportunity costs of using resources that are owned by the firm. In this case, Campbell's implicit costs are the wages he could have earned if he had worked for someone else instead of running his brother's lumber mill. Since Campbell took in $10,000 in sales revenue and paid $6,800 in out-of-pocket costs, his accounting profit is $3,200. However, if his implicit costs are $2,000, then his economic profit is $3,200 - $2,000 = $1,200.

Campbell Recently Began Running His Brother's Lumber Mill