Scenario 8.1
Jane left her job at Siemens and started her own boutique.She used to earn $50,000 annually at Siemens.She took a loan of $10,000 and used $20,000 from her personal savings to begin her venture.She agreed to repay the loan with 10% interest.Her business is bringing in $80,000 annually.She has rent and labor expenses of $15,000.Also assume that Jane could have used her own money i.e.$20,000 to buy stocks in Intel which would have returned 5% to her last year.
-Refer to Scenario 8.1.Compute Jane's economic profit.
A)$13,000
B)$14,000
C)$20,000
D)$15,000
E)$10,000

Question

Scenario 8.1
 Jane left her job at Siemens and started her own boutique.She used to earn $50,000 annually at Siemens.She took a loan of $10,000 and used $20,000 from her personal savings to begin her venture.She agreed to repay the loan with 10% interest.Her business is bringing in $80,000 annually.She has rent and labor expenses of $15,000.Also assume that Jane could have used her own money i.e.$20,000 to buy stocks in Intel which would have returned 5% to her last year.
-Refer to Scenario 8.1.Compute Jane's economic profit.
A)$13,000
B)$14,000
C)$20,000
D)$15,000
E)$10,000

Quizplus · Accepted Answer

To calculate economic profit, we need to subtract all explicit and implicit costs from total revenue.

Total revenue = $80,000 
Explicit costs = $15,000 (rent and labor expenses)
Implicit costs = $10,000 (loan repayment with 10% interest) + $10,000 (opportunity cost of using personal savings instead of investing in Intel stocks and earning a return of 5%) 
Implicit costs = $20,000

Economic profit = Total revenue - Explicit costs - Implicit costs 
Economic profit = $80,000 - $15,000 - $20,000 
Economic profit = $45,000 - $20,000 
Economic profit = $25,000

Therefore, Jane's economic profit is $13,000 after deducting all the costs involved in her business venture. The best choice for Jane would be to continue with her own business as it is generating a positive economic profit.

Scenario 8.1 Jane Left Her Job at Siemens and Started Her