Question

At the end of the first year, your books showed total revenues of $180,000 and total explicit costs of $90,000 for labor, ink, utilities, taxes, and miscellaneous supplies. Your total cost of doing business during the first year is _____ and you earned economic profit of _____.

Answer 1

Answer:

$90,000; $90,000

Explanation:

Given that,

At the end of the first year,

Total revenues of the books = $180,000

Total explicit costs = $90,000

Here, we assume that there is no opportunity cost of doing this business, Total implicit costs = $0

Explicit costs refers to the costs that are incurred for running the business such as rent, labor, ink, utilities, taxes, and miscellaneous supplies.

Economic profit is determined by deducting explicit costs and implicit costs from the total revenue. Implicit costs are the opportunity costs.

Total cost of doing business during the first year:

= Explicit costs + Implicit costs

= $90,000 + $0

= $90,000

Economic profit:

= Total revenues - Explicit costs - Implicit costs

= $180,000 - $90,000 - $0

= $90,000