Helga owns Viking, Inc., started with her $100,000 inheritance.Helga's accountant informs her that her firm earned a profit of $100,000 last year, and that if she chooses to invest the money she can expect a 10% return.If Helga did not run Viking, she would not work.What were Helga's economic profits last year?

Question

Quizplus · Accepted Answer

To calculate Helga's economic profits, we need to subtract both explicit costs (such as wages) and implicit costs (such as the opportunity cost of not investing the $100,000) from her total revenue. Since Helga would not work if she did not run Viking, her wage is zero and we don't need to subtract explicit costs. However, we do need to account for the opportunity cost of not investing the $100,000. 
If Helga had invested the $100,000, she could expect a return of $10,000 (10% of $100,000). Therefore, her economic profits are:
Total Revenue - Explicit Costs - Implicit Costs
$100,000 - 0 - $10,000 = $90,000
So the answer is C, $90,000.

Helga Owns Viking, Inc