Question

Mr. Sweet opened a candy store. He rented a building for $30,000 a year. During the first year of operation, Sweet paid $40,000 to his employees, $10,000 for utilities, and $20,000 for goods he bought from other firms. His total revenue was $135,000. Sweet's best alternative to running this candy store is to work for Wal-Mart as a sales associate for $15,000 a year. What is Sweet's economic profit

Answer 1

Answer:

$20,000

Explanation:

Calculation for Sweet's economic profit

First step is to calculate the Explicit Costs

Using this formula

Explicit Costs = Rent on building +Payment of Salary to employees + Utilities + Goods bought

Let plug in the formula

Explicit Costs = ($30,000)+ ($40,000) + ($20,000) +($10,000)

Explicit Costs =$100,000

Last step is to calculate Sweet's economic profit

Using this formula

Economic profit = Total Revenue – (Explicit Costs + Implicit Costs)

Let plug in the morning

Economic profit = $135,000 - $100,000 - $15,000

Economic profit= $20,000

Therefore Sweet's economic profit will be $20,000