Scenario 13-9
Ellie has been working for an engineering firm and earning an annual salary of $80,000. She decides to open her own engineering business. Her annual expenses will include $15,000 for office rent, $3,000 for equipment rental, $1,000 for supplies, $1,200 for utilities, and a $35,000 salary for a secretary/bookkeeper. Ellie will cover her start-up expenses by cashing in a $20,000 certificate of deposit on which she was earning annual interest of $500.
-Refer to Scenario 13-9. According to an economist, which of the following revenue totals will yield Ellie's business $50,000 in economic profits?
A)$55,200
B)$100,200
C)$132,500
D)$185,700

Question

Quizplus · Accepted Answer

Economic profit is calculated as total revenue minus total costs, including both explicit and implicit costs. Ellie's explicit costs are $55,200 ($15,000 + $3,000 + $1,000 + $1,200 + $35,000). Her implicit costs include the forgone salary of $80,000 and the forgone interest of $500, totaling $80,500. To achieve $50,000 in economic profit, her total revenue must be $185,700 ($55,200 + $80,500 + $50,000).

Scenario 13-9 Ellie Has Been Working for an Engineering Firm and Earning