Suppose you own a small business. Last month, your total revenue was $6,000. In addition, you paid: $1,000 in monthly rent for office space.
$200 in monthly rent for equipment.
$3,000 to your workers in wages for the month.
$1,000 for the supplies you used that month.
If you correctly determine that your economic profit last month was negative $200, then it must be true that:
A)you do not have any implicit costs.
B)your implicit costs are $200 per month.
C)your implicit costs are $1,000 per month.
D)the rent you pay on your equipment is an implicit cost.

Question

Quizplus · Accepted Answer

The economic profit is calculated as total revenue minus total costs (explicit and implicit). Given the explicit costs ($1,000 + $200 + $3,000 + $1,000 = $5,200), the implicit costs must be $1,000 to result in a negative economic profit of $200.

Suppose You Own a Small Business