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6 September, 15:58

Sid has decided to leave his $70,000-a-year landscape design job and open a new kayak business. His insurance cost is expected to be $2,000 per year. The kayaks he owns are valued at $25,000, but he experiences 10% annual depreciation on them. He will also use building space that he owns, but, to do so, he must give up the $10,000 per year in rent he used to receive for the space. Revenue is expected to equal $100,000 per year. Sid's economic profit is: $2,000 $15,500 $84,500 $82,500

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  1. 6 September, 15:59
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    The correct answer is $15,500.

    Explanation:

    According to the scenario, the computation of the given data are as follows:

    Revenue = $100,000

    Insurance cost = $2,000

    Design job leave = $70,000

    Rent = $10,000

    Annual depreciation = 10% * $25,000 = $2,500

    So, we can calculate the economic profit by using following formula:

    Economic Profit = Total Revenue - (Explicit cost + Implicit costs)

    By putting the value, we get

    = $100,000 - ($70,000 + $2,000 + $10,000 + $2,500)

    = $15,500
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