Question

Andrew decides to open a photography shop that takes wedding photos. His revenue is $300,000 per year. His shop is in a building that he owns and could rent for $10,000 per year. He has an assistant whom he pays a $30,000 salary each year. He has start-up costs of $60,000 for cameras, memory cards, lighting equipment and other miscellaneous technology. In order to operate his shop, Andrew gave up his job as a professor in which he earned $70,000 per year. Andrew's economic profit is:

Answer 1

Answer:

$130,000

Explanation:

In this question, we are going to calculate Andrew’s economic profit.

To do this, we first identify the mathematical formula that could help us arrive at the answer.

Mathematically, economic profit = Total revenues-(explicit cost + implicit cost)

Explicit cost are referred to as direct payment made by the business. Here, the explicit cost include ,cost of labor and start up costs. The value is thus 30,000 + 60,000 = $90,000

The implicit cost here is the opportunity cost, which is the amount she would have earned at her previous job. Another implicit cost here is the $10,000 he is supposed to pay for rent but does not since he owns the building

The Economic profit is thus = 300,000 -90,000-10,000-70,000 = $130,000