Question

Ralph owns a small pizza restaurant, where he works full-time in the kitchen. His total revenue last year was $100,000, and his rent was $3,000 per month. He pays his one employee $2,000 per month, and the cost of ingredients and overhead averages $500 per month. Ralph could earn $35,000 per year as the manager of a competing pizza restaurant nearby. His total economic profit for the year was:___________
a. –$35,000.
b. –$1,000.
c. $20,000.
d. $34,000.
e. $65,000.

Answer 1

Answer:

His total economic profit for the year was –$1,000. The right answer is b.

Explanation:

In order to calculate the total economic profit for the year, we have to use the following formula:

Total economic profit = total revenue - total explicit cost - implicit cost =

Acording to the data:

Total Revenue=$100,000

Total explicit cost= ($3,000×12)+($2,000×12)+($500×12)=$ 66,000

implicit cost= $ 35,000

Hence, Total economic profit= $100,000 - $66,000 - $35,000 = -$1,000