Scenario 13-5
Samantha has been working for a law firm and earning an annual salary of $80,000.She decides to open her own practice.Her annual expenses will include $15,000 for office rent,$3,000 for equipment rental,$1,000 for supplies,$1,200 for utilities,and a $35,000 salary for a secretary/bookkeeper.Samantha will cover her start-up expenses by cashing in a $20,000 certificate of deposit on which she was earning annual interest of $500.
-Refer to Scenario 13-5.According to an economist,which of the following revenue totals will yield her business $50,000 in economic profits?

Question

Quizplus · Accepted Answer

Economic profit is calculated as total revenue minus total costs, including both explicit and implicit costs. Samantha's explicit costs are $55,200 ($15,000 + $3,000 + $1,000 + $1,200 + $35,000). Her implicit costs include the $80,000 salary she foregoes and the $500 interest from the certificate of deposit, totaling $80,500. To achieve $50,000 in economic profit, her revenue must cover $135,700 in total costs ($55,200 + $80,500) plus the $50,000 profit, totaling $185,700.

Scenario 13-5 Samantha Has Been Working for a Law Firm and Earning