Adam is the owner/operator of a flower shop.Last year he earned $250,000 in total revenue.His explicit costs were $175,000 paid to his employees and suppliers (assume that this amount represents the total opportunity cost of these resources).During the year he received three offers to work for other flower shops with the highest offer being $75,000 per year.Which of the following is true about Adam's accounting and economic profit?
A)Accounting profit = $75,000;economic profit = $0.
B)Accounting profit = $175,000;economic profit = $75,000.
C)Accounting profit = $75,000;economic profit = negative $100,000.
D)Accounting profit = $0;economic profit = negative $75,000.

Question

Quizplus · Accepted Answer

Accounting profit is calculated by subtracting explicit costs from total revenue, which is $250,000 - $175,000 = $75,000. Economic profit also considers opportunity costs, which in this case includes the $75,000 job offer Adam did not take. Therefore, economic profit is $75,000 (accounting profit) - $75,000 (opportunity cost) = $0.

Adam Is the Owner/operator of a Flower Shop