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8 November, 13:23

In 2013, Roma was a schoolteacher and earned $40.000. But she enjoys creating cartoons, so at the beginning of 2014, Roma quit teaching and set to work as a cartoonist. She stopped renting out her basement for 55,000 a year and began to use it as her office. She used 55,000 from her savings account to buy a new computer, and she leased a printer for $150 a year. During 2010, Roma paid $1,250 for paper, utilities, and postage: the bank paid 5 percenta year on savings account balances and Roma sold $50,000 of cartoons. Normal profit is $3,000 a year. At the end of 2014, Roma was offered $4,000 for her computer. For 2014, calculate Roma's: 1a. Explicit costs. 1b. Implicit costs. 1c. Economic profit.

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  1. 8 November, 13:52
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    a. $56,400

    b. 101,750

    c. Economic loss of $108,150

    Explanation:

    a.

    Explicit Cost

    The direct payments made to other for different purposes s explicit cost. Such as wages, rent etc.

    For Roma Explicit costs are

    Computer $55,000

    Printer lease payment $150

    Paper, utilities, & postage $1,250

    Total Explicit Cost $56,400

    b.

    Implicit Cost

    Any opportunity cost is the implicit cost. The loss of benefit which someone faces for choosing an alternative.

    For Roma Explicit costs are

    School Teacher Salary $40.000.

    Building rent $55,000

    Bank Interest (5% 55,000) $2,750

    Computer offer $4,000

    Total Implicit cost $101750

    c.

    Economic Profit

    Economic Profit is the net of Revenue / Income less Implicit and Explicit costs associated with the revenue / Income.

    Economic Profit / loss = Total Revenues - (Explicit Costs + Implicit Costs)

    Economic Profit / loss = $50,000 - ($56,400 + 101,750)

    Economic Loss = $108,150
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