Question

Zippy is earning ​$30 comma 000 per year working for​ Joe's Car Repair. He also has savings of ​$150 comma 000​, on which he is earning​ 10% annual interest. He decides to leave​ Joe's Car Repair to invest his savings in starting his own car repair business. In the first​ year, Zippy's Speedy Car Repair earns revenues of ​$250 comma 000 and has explicit costs of ​$100 comma 000. ​Zippy's economic profit​ (or loss) in the first year is ​$ nothing. ​(Round your answer to the nearest​ dollar.)

Answer 1

Answer: $105,000

Explanation: In Economics the term profit refers to the amount a company or an individual left with after paying for implicit and explicit cost. Explicit cost means cost paid to others for their services.

While, Implicit cost or opportunity cost is the cost of loosing profits due to choosing one alternative over other. In this case Zippy's salary and his interest on savings is his implicit cost.

therefore,

Economic profit = $250,000 - ( $30,000 + $15,000 + $100,000 )

                          =  $105,000