Bev is opening her own court-reporting business. She financed the business by withdrawing money from her personal savings account. When she closed the account, the bank representative mentioned that she would have earned $300 in interest next year. If Bev hadn't opened her own business, she would have earned a salary of $25,000. In her first year, Bev's revenues were $30,000, and she spent $1,000 on materials and supplies. Which of the following statements is correct?
A)Bev's total explicit costs are $26,300.
B)Bev's total implicit costs are $300.
C)Bev's accounting profits exceed her economic profits by $300.
D)Bev's economic profit is $3,700.

Question

Quizplus · Accepted Answer

Bev's economic profit is calculated as total revenue minus both explicit and implicit costs. Her explicit costs are $1,000, and her implicit costs include the foregone salary of $25,000 and the foregone interest of $300, totaling $25,300. Her economic profit is $30,000 - ($1,000 + $25,300) = $3,700.

Bev Is Opening Her Own Court-Reporting Business