Scenario 12-8
Ellie has been working for an engineering firm and earning an annual salary of $80,000.She decides to open her own engineering business.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.Ellie 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 12-8.According to an economist,which of the following revenue totals will yield Ellie's business $50,000 in economic profits?
A) $55,200
B) $100,200
C) $132,500
D) $185,700

Question

Quizplus · Accepted Answer

Economic profit is calculated as total revenue minus total costs, including both explicit and implicit costs. Ellie's explicit costs are $15,000 + $3,000 + $1,000 + $1,200 + $35,000 = $55,200. The implicit cost is the forgone interest of $500. To achieve $50,000 in economic profit, total revenue must be $55,200 + $500 + $50,000 = $105,700. Therefore, the correct revenue total is $185,700, which accounts for all costs and desired profit.

Scenario 12-8 Ellie Has Been Working for an Engineering Firm and Earning