Question

Tom quit his $65,000 a year corporate lawyer job to open up his own law practice. In Tom's first year in business his total revenue equaled $150,000. Tom's explicit cost during the year totaled $85,000. What is Tom’s economic profit for his first year in business?
A) $0
B) $85, 000
C) $20, 000
D) $65, 000

Answer 1

Answer:

Given:

Implicit Cost = $65,000

Total revenue = $150,000

Explicit cost =  $85,000

Here, we'll compute the economic profit for the first year as :

Economic profit = Total revenue - (Explicit cost + Implicit Cost)

Economic profit = $150,000 - ($85,000 + $65,000)

Economic profit = $0

∴ Tom’s economic profit for his first year in business will be $0

The correct option is (a).