Question

Jake is leaving Shoe Warehouse to open his own shoe boutique. Jake currently earns $40,000 a year at Shoe Warehouse, but he is expecting to earn $170,000 per year once he is established. Jake has rented a storefront for $40,000 per year and will have to spend $11,000 on inventory and furniture to start his business. Calculate Jake's economic profit.

Answer 1

Answer:

$79,000

Explanation:

Given that,

Implicit cost and explicit costs are as follows:

Earning at Shoe Warehouse = $40,000 a year

Jake has rented a storefront = $40,000 per year

Spend = $11,000 on inventory

Total revenue = $170,000 per year

Therefore,

Economic profit = Total revenue - (Explicit cost + implicit costs)

                          = $170,000 - ($11,000 + $40,000 + $40,000)

                          = $170,000 - $91,000

                          = $79,000