A small business owner earns $50,000 in revenue annually.The explicit annual costs equal $30,000.The owner could work for someone else and earn $25,000 annually.The owner's business profit is ________ and the economic profit is ________.

Question

Quizplus · Accepted Answer

The business profit (accounting profit) is calculated as revenue minus explicit costs, which is $50,000 - $30,000 = $20,000. The economic profit considers both explicit and implicit costs (opportunity costs). The opportunity cost is the $25,000 the owner could earn elsewhere. Thus, economic profit is $20,000 - $25,000 = -$5,000.

A Small Business Owner Earns $50,000 in Revenue Annually