To pursue her goal of being a business owner, Mary left a job that paid $40,000 per year. At the end of her first year in business, her cash revenues summed to $90,000, and her explicit costs were $50,000. Also, in order to fund her business startup, Mary cashed in a $20,000 certificate of deposit that was providing a yield of 5%. Ceteris paribus, Mary's economic profit is:

a) $0

b) $1,000.

c) $40,000

d) - $1,000.

Question

Joe Kent

Business

26 June, 04:21

To pursue her goal of being a business owner, Mary left a job that paid $40,000 per year. At the end of her first year in business, her cash revenues summed to $90,000, and her explicit costs were $50,000. Also, in order to fund her business startup, Mary cashed in a $20,000 certificate of deposit that was providing a yield of 5%. Ceteris paribus, Mary's economic profit is:

a) $0

b) $1,000.

c) $40,000

d) - $1,000.

+1

Answers (1)

Know the Answer?

Alonso Woodard · Answer 1

The answer is: D) - $1,000

Explanation:

The formula for calculating economic profit is:

Economic profit = revenue - (explicit costs + implicit costs)

Revenue = $90,000 Explicit costs = $50,000 Implicit costs = $40,000 (opportunity cost for not having her old job) + $1,000 (5% x $20,000)

Economic profit = $90,000 - ($50,000 + $41,000) = $90,000 - $91,000

Economic profit = - $1,000