A lawyer running his own business earns $18,000 in revenue monthly.He pays $8,000 as explicit costs including staff salary and utilities.He owns the office space so no rent is paid..The lawyer could work for other legal firms and earn $10,000 per month.His business profit is ________ and his economic profit is ________.

Question

Quizplus · Accepted Answer

The business profit is calculated by subtracting explicit costs from revenue, which is $18,000 - $8,000 = $10,000. Economic profit takes into account both explicit and implicit costs (opportunity costs), which in this case includes the $10,000 he could earn elsewhere. Thus, economic profit is $10,000 (business profit) - $10,000 (opportunity cost) = $0.

A Lawyer Running His Own Business Earns $18,000 in Revenue