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?

Answer 1

Answer:

Tom’s economic profit for his first year in business is $0.

Explanation:

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.

The economic profits include both implicit as well as explicit cost.

The implicit cost is the opportunity cost of quitting corporate job.

Economic profits

= Total Revenue - Total costs

= $150,000 -  ($85,000 + $65,000)

= $0