Suppose a family-owned yogurt shop has $80,000 in total revenues, $36,000 in rent, and $20,000 in additional operating costs. The husband and wife work in the shop and pay no wages to themselves or others. The economic profits from the shop are

Question

Quizplus · Accepted Answer

To calculate economic profit, we subtract both explicit (rent and operating costs) and implicit costs (the opportunity cost of the husband and wife's labor) from total revenues. Therefore, Economic profit = $80,000 - $36,000 - $20,000 - $0 (implicit costs) = $24,000. However, the question asks for economic profits, not accounting profits. Since the husband and wife work in the shop and pay no wages to themselves, they are essentially giving up the opportunity to earn money elsewhere, which is an implicit cost. Therefore, the economic profit is less than $24,000.

Suppose a Family-Owned Yogurt Shop Has $80,000 in Total Revenues