Refer to Scenario 7.1 below to answer the question(s) that follow.
SCENARIO 7.1: You are the owner and only employee of a company that writes computer software that is used by gamblers to collect sports data. Last year you earned a total revenue of $90,000. Your costs for equipment, rent, and supplies were $60,000. To start this business you invested an amount of your own capital that could pay you a return of $40,000 a year.
-Refer to Scenario 7.1. Your economic profit last year was
A) -$40,000.
B) -$10,000.
C) $10,000.
D) $30,000.

Question

Quizplus · Accepted Answer

Economic profit is calculated by subtracting both explicit (actual financial costs) and implicit costs (opportunity costs) from total revenue. Here, explicit costs are $60,000, and the implicit cost (the return the owner could have earned on the invested capital) is $40,000. Subtracting these costs ($100,000 in total) from the total revenue ($90,000) results in an economic profit of -$10,000.