A small business owner earns $60,000 in revenue annually.The explicit annual costs equal $40,000.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 is calculated as revenue minus explicit costs, which is $60,000 - $40,000 = $20,000. The economic profit takes into account both explicit and implicit costs (the latter being the income the owner forgoes by not working for someone else, $25,000). Thus, economic profit is $20,000 (business profit) - $25,000 (implicit cost) = -$5,000.

A Small Business Owner Earns $60,000 in Revenue Annually