Question

Suppose you own a small business. last month, your total revenue was $6,000. in addition, you paid: $1,000 in monthly rent for office space. $200 in monthly rent for equipment. $3,000 to your workers in wages for the month. $1,000 for the supplies you used that month. if you correctly determine that your economic profit last month was negative $200, then it must be true that:

Answer 1

Profit is simply the difference of revenue and total cost.

Profit = Revenue – Total Cost

 

where total cost is the sum of explicit cost and implicit cost

Profit = Revenue – (Explicit cost + Implicit cost)

 

The explicit cost is:

Explicit cost = 1000 + 200 + 3000 + 1000 = $5,200

 

So finding for implicit cost:

-200 = 6000 – (5,200 + Implicit cost)
Implicit cost = $1,000

 

Answer:

Your implicit costs are 1,000