Question

suppose winston's annual salary as an accountant is $60,000 and his financial assets generate $4,000 per year in interest. one day, after deciding to be his own boss, he quits his job and uses his financial assets to establish a consulting business, which he runs out of his home. he outlays $8,000 in cash to cover all the costs involved with running the business and earns revenues of $150,000. what is winston's economic profit?

Answer 1

To run the business, he outlays $8,000 in cash to cover all the costs involved with running the business, and earns revenues of $150,000. Winston's implicit costs $64,000

What is implicit costs?

Any expense that has already happened but isn't always shown or reported as a separate charge is considered an implicit cost. It stands for an opportunity cost that develops when a business commits internal resources to a project without receiving any direct payment in exchange.

For instance, losing out on sales and commissions while training a new employee takes up a day. This opportunity cost, often known as the commission and other pay, is a cost to the employee or trainer.

Explicit costs are distinguished from implicit costs by economists. Out-of-pocket costs including those for labour, supplies, and rent are considered explicit costs, also known as accounting costs. Implicit costs are expenses a company faces without making a direct financial commitment.

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