Bev is opening her own court-reporting business. She financed the business by withdrawing money from her personal savings account. When she closed the account, the bank representative mentioned that she would have earned $300 in interest next year. If Bev hadn't opened her own business, she would have earned a salary of $25,000. In her first year, Bev's revenues were $30,000. Which of the following statements is correct?

a) Bev's total explicit costs are $25,300.

b) Bev's total implicit costs are $300.

c) Bev's accounting profits exceed her economic profits by $300.

d) Bev's economic profit is $4,700.

Question

Jayvon Oconnor

Business

13 August, 19:00

Bev is opening her own court-reporting business. She financed the business by withdrawing money from her personal savings account. When she closed the account, the bank representative mentioned that she would have earned $300 in interest next year. If Bev hadn't opened her own business, she would have earned a salary of $25,000. In her first year, Bev's revenues were $30,000. Which of the following statements is correct?

a) Bev's total explicit costs are $25,300.

b) Bev's total implicit costs are $300.

c) Bev's accounting profits exceed her economic profits by $300.

d) Bev's economic profit is $4,700.

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Answers (1)

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Samantha · Answer 1

The correct answer is option d.

Explanation:

Bev opened her own court-reporting business.

In her first year, she earned $30,000 as revenue.

If she had not started a business she would have earned a salary of $25,000.

She financed the business by withdrawing money from her personal savings account.

She would have earned $300 in interest if she had not withdrawn money.

The accounting profit for Bev is $25,000.

The total implicit cost is

= $25,000 + $300

= $25,300

The economic profits exclude implicit costs from revenue.

Economic profits

= $30,000 - $25,300

= $4,700