Question

George owns a dude ranch in Texas. He pays $32,000 per year in insurance, $408,000 in wages, and $23,000 in supplies. He forgoes $32,000 per year he could make as a police officer. His total revenue last year equaled $460,000. That means his economic _____ equaled _____.

Answer 1

Answer:

Profit, $35,000

Explanation:

Economic profit or loss is defined as the difference among the revenue received from the output sale and the input costs and any kind of opportunity costs.

While computing the economic profit, the explicit as well as opportunity cost will be deducted or subtracted from the earned revenues.

So, in this case, Economic Profit or loss is computed as:

Economic Profit or loss = Costs - Revenue

where

Costs involve

= $32,000 + $408,000 + $23,000 + $32,000

= $495,000

Revenue is $460,000

Therefore,

Economic profit = $495,000 - $460,000

= $35,000