Question

Lashondra is the owner/operator of an interior design firm. Last year she earned $400,000 in total revenue. Her explicit costs were $200,000 (assume that this amount represents the total opportunity cost of these resources). During the course of the year she received offers to work for other design firms. One offer would have paid her $120,000 per year and the other would have paid her $130,000 per year. Lashondra’s economic profit is equal to:____________.
a. $50,000
b. $70,000
c. $200,000
d. $0.

Answer 1

Answer:

b. $70,000

Explanation:

Let's assume she took the offer of $130000

Her explicit costs were $200,000

Profit = cost - revenue

Profit = 200000 - 130000

Profit = $70,000

Answer 2

Answer:

b. $70,000

Explanation:

Economic profit is the difference between the total revenue received by a business and the total implicit and explicit costs of a firm.

Economic profit = Total revenue - (Implicit costs + Explicit costs)

Economic profit = $400,000 - $200,000 - $130,000 = $70000

Therefore Lashondra's economic profit is equal to $70000.