Question

As a server you earn $60000 per year, including tips. Someone offers you a new job as an economic consultant, which pays $100,000 per year. To be a consultant, you’ll need to rent an office, purchase supplies, and buy new computer equipment. Which of the following can we conclude? Choose one:A. If the explicit cost for the consulting job is $20,000 per year, your accounting profit is equal to $20000.B. If the explicit cost for the consulting job is $25,000 per year, your economic profit is equal to $15000.C. If the explicit cost for the consulting job is $20,000 per year, your economic profit is equal to $80,000.D. If the explicit cost for the consulting job is $30,000 per year, your accounting profit is equal to $10000.

Answer 1

The correct option is B

Explanation:

The accounting profit can be calculated with the help of following given formula

Accounting profit = revenue minus the explicit costs =100000 minus 25000

Thus, after calculations, the accounting profit is equal to $75000

To calculate the economic profit, the following formula is to be used.

The economic profit = accounting profit minus the implicit costs

=75000 minus 30000  

($30000 is his salary as the server which is opportunity cost)  =$45000

Thus, the Option B is the correct answer.