Corrina was working as a waitress in an Italian restaurant making an annual income of $25,000 per year when she decided to start up her own catering business. Corrina used $10,000 of her savings that was earning 5 percent annual interest to establish her business. After the first year she made an accounting profit of $20,000. Her economic profit was

Question

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Economic profit is calculated by subtracting both explicit (actual out-of-pocket expenses) and implicit (opportunity costs of resources) costs from total revenue. Here, Corrina's explicit costs include the $10,000 she invested from her savings. The implicit costs include the $25,000 salary she gave up by leaving her job and the $500 of interest ($10,000 * 5%) she would have earned on her savings. Therefore, her total costs are $35,500 ($10,000 + $25,000 + $500). Subtracting this from her accounting profit of $20,000 gives an economic profit of -$15,500. However, since none of the provided options match this calculation, it seems there was a mistake in my calculation. Re-evaluating with the correct approach: The correct calculation for economic profit should consider the opportunity cost of her salary ($25,000) and the lost interest ($500), which totals $25,500 in implicit costs. Adding this to her explicit investment of $10,000 gives total costs of $35,500. Subtracting her revenue of $20,000 from $35,500 gives an economic profit of -$15,500, which is not an option provided. Given the options and the mistake in the initial explanation, the correct approach to find the answer listed should involve recognizing the error in calculation or interpretation based on the options provided. Since none of the calculations exactly match the options and considering the potential misunderstanding in the explanation, the correct answer intended might be based on a different interpretation of economic profit or a specific aspect of the scenario not accounted for in the initial explanation. Without the exact calculation error identified, the correct choice should reflect an understanding of economic profit, but given the options and the mistake acknowledged, the precise answer according to standard economic profit calculation does not match the provided choices.

Corrina Was Working as a Waitress in an Italian Restaurant