Question

Melanie sets up her own business. her hair salon earns $10,000 in revenue a month. she spends $500 per month on supplies (shampoo, brushes, etc). her tools depreciate at a rate of $600 annually. before she started her own business, she previously earned $3,000 per month as a hairdresser in another salon. her equipment is very specialized and has no other uses. what is melanie's economic profit per month?

Answer 1

Melanie's economic profit per month is computed as follows: $10,000 (revenue monthly) - $500 (supplies monthly) - $50 (monthly depreciation = $600 annually / 12 months in a year) = $9,450.