Juan's Software Service Company is in a perfectly competitive market.Juan has total fixed cost of $25,000,average variable cost for 1,000 service calls is $45,and marginal revenue is $75.Juan's makes 1,000 service calls a month.What is his economic profit?
A) $5,000
B) $25,000
C) $45,000
D) $75,000
E) $50,000

Question

Quizplus · Accepted Answer

To calculate economic profit, we need to subtract total cost from total revenue.

Total revenue = quantity sold x price = 1,000 x $75 = $75,000

Total cost = total fixed cost + total variable cost
Total variable cost = average variable cost x quantity = $45 x 1,000 = $45,000
Total cost = $25,000 + $45,000 = $70,000

Economic profit = total revenue - total cost = $75,000 - $70,000 = $5,000

Therefore, the correct answer is A) $5,000.

Juan's Software Service Company Is in a Perfectly Competitive Market