Question

Christine is an artist who creates custom cookie jars. Her annual revenue from selling the cookie jars is $90,000. The annual explicit costs of the materials used to make the cookie jars are $54,000. Refer to Scenario 13-13. Christine used $5,000 from her personal savings account to buy pottery tools for her business. The savings account paid 1% annual interest. Christine could earn $6,000 per year as a tax preparer. What is the annual economic profit of her cookie jar business?

Answer 1

Answer:  $29,950

Explanation: As we know that,

Economic profit = Total revenues - (explicit cost + implicit cost)

where,

Explicit costs are payments made to others for running operations of business.

Implicit cost or opportunity cost can be defined as the cost of loosing profits for choosing one alternative instead of other.

In the given case the interest of $50 on savings and $6000 salary is the implicit cost.

Economic profit = $90,000 - ($54,000 + $50 + $6,000)

                         = $29,950