Question

Use the following scenario to answer the following questions: Babak owns a sports practice facility called Boston Batting Cages in Boston, Massachusetts. During the first year of operation, Boston Batting Cages incurred many costs. In that year, Babak spent $5,000 on labor, $2,000 on maintenance, and $1,000 on electricity. Babak took out a loan to open his business, in which he would have earned $1,500, and his previous job, which he could get back at any time, paid him $50,000. If Boston Batting Cages received $80,000 in revenues, what were the economics profits

Answer 1

Answer:

$20,500

Explanation:

Economic profit is the difference between the total revenue generated and the total explicit (direct) and implicit  (Indirect cost ) incurred

Total revenue  - (explicit cost + implicit cost )

Revenue                        80,000

Explicit cost

Labor                                                             5000

maintenance                                                2000

Electricity                                                      1000

Total                               (8000)

Implicit cost                                                

loan revenue forgone                                  1500

Previous earning                                           50000

Total                               (51,500)

Economic profit            20,500