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 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:

Answer 1

Answer:

The answer is: $70,000

Explanation:

Economic profit is defined as the difference between the accounting profit earned from selling products or services and the opportunity costs (or implicit costs).

The formula used to calculate economic profit is:

accounting profit - implicit costs = economic profit

were accounting profit = total revenues - explicit costs

($400,000 - $200,000) - $130,000 = $70,000 Lashondra´s economic profit