As a server you earn $30000 per year, including tips. Someone offers you a new job as an economic consultant, which pays $100,000 per year. To be a consultant, you'll need to rent an office, purchase supplies, and buy new computer equipment. Which of the following can we conclude?

(A) If the explicit cost for the consulting job is $20,000 per year, your economic profit is equal to $80,000.

(B) If the explicit cost for the consulting job is $25,000 per year, your economic profit is equal to $45000.

(C) If the explicit cost for the consulting job is $30,000 per year, your accounting profit is equal to $40000.

(D) If the explicit cost for the consulting job is $20,000 per year, your accounting profitis equal to $50000.

Question

Lucian

Business

21 April, 23:02

As a server you earn $30000 per year, including tips. Someone offers you a new job as an economic consultant, which pays $100,000 per year. To be a consultant, you'll need to rent an office, purchase supplies, and buy new computer equipment. Which of the following can we conclude?

(A) If the explicit cost for the consulting job is $20,000 per year, your economic profit is equal to $80,000.

(B) If the explicit cost for the consulting job is $25,000 per year, your economic profit is equal to $45000.

(C) If the explicit cost for the consulting job is $30,000 per year, your accounting profit is equal to $40000.

(D) If the explicit cost for the consulting job is $20,000 per year, your accounting profitis equal to $50000.

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Answers (1)

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Silas Payne · Answer 1

(B) If the explicit cost for the consulting job is $25,000 per year, your economic profit is equal to $45000.

Explanation:

Economic profit is obtained by substracting explicit (monetary) costs, and implicit (opportunity) costs, from total earnings.

In this case, the earnings for working as an economic consultant are $100,000. The implicit, opportunity cost is the $30,000 that are given up because of quitting the serving job. If the explicit cost of renting an office, purchasing supplies and buying a computer is $25,000, then, we have the following equation:

Economic profit = earnings - explicit costs - implicit costs

= $100,000 - $25,000 - $30,000

= $45,000