Question

Billy Bob runs a seafood restaurant. Last year he earned $50,000 in revenue. He had explicit costs of $20,000. Billy Bob could have made $30,000 working for the county and could have received an additional $20,000 if he rented out his building and equipment. Calculate Billy Bob’s economic profit. Group of answer choices -$20,000 $20,000 $0 $30,000

Answer 1

Answer: -$20,000

Explanation:

Economic profit = Accounting profit - Opportunity cost

Accounting profit = Total revenue - Explicit cost.

Total revenue = $50,000

Explicit cost = $20,000

Opportunity cost = $30,000 + $20,000 = $50,000.

Accounting profit = $30,000

Economic profit = $30,000 - $50,000 = -20,000