Question

Karolina owns a small diner, where she works full-time in the kitchen. Her total revenue last year was $100,000, and her rent was $3,000 per month. She pays her one employee $2,000 per month, and the cost of ingredients and overhead averages $500 per month. Karolina could earn $35,000 per year as the manager of a competing diner nearby. Her total economic profit last year was: Choose one: A. $65,000. C. –$1,000. D. $20,000.

Answer 1

Answer:

Option c

Explanation:

Given:

Total revenue = $ 100,000

Rent for one month = $ 3,000

Total Rent paid in the year = $ 3000 × 12=$ 36,000

Amount paid to the employee per month = $ 2,000

Total amount paid to the employee in the year = $ 2,000 × 12 = $ 24,000

Per month cost of ingredient and overhead = $ 500

The total ingredient and overhead for the year = $ 500 × 12 = $ 6,000

Implicit cost for the year = $ 35,000

Therefore,

The total expenses = $ 36,000 + $ 24,000 + $ 6,000 = $ 66,000

Thus,

The economic Profit = Total Revenue - expenses - Implicit Costs

or

= $ 100,000 - $ 66,000 - $ 35,000

or

= - $ 1000

hence, the correct answer is option C