Scenario 13-3
Zach took $500,000 out of the bank and used it to start his new cookie business.The bank account pays 4 percent interest per year.During the first year of his business, Zach sold 15,000 boxes of cookies for $3 per box.Also, during the first year, the cookie business incurred costs that required outlays of money amounting to $14,000.
-Refer to Scenario 13-3.What was Zach's economic profit for the year

Question

Quizplus · Accepted Answer

Zach's economic profit is calculated by subtracting both explicit and implicit costs from total revenue. Total revenue is $45,000 (15,000 boxes * $3). Explicit costs are $14,000. Implicit costs include the forgone interest from the bank, which is $20,000 (4% of $500,000). Economic profit = $45,000 - $14,000 - $20,000 = $11,000.

Scenario 13-3 Zach Took $500,000 Out of the Bank and Used It