Scenario 13-12
Ariana withdrew $400,000 out of her personal savings account and used it to start her new Internet cafe. The savings account pays 3 percent interest per year. During the first year of her business, Ariana sold 2,000 cups of coffee for $2.50 per cup and 4,000 hours of Internet time, also at $2.50 per hour. During the first year, the business made monetary outlays of $9,000. You may assume that there is no opportunity cost to Ariana's time.
-Refer to Scenario 13-12. Ariana's economic profit for the year was
A)$-394,000.
B)$-6,000.
C)$3,000.
D)$6,000.

Question

Quizplus · Accepted Answer

Ariana's economic profit is calculated by subtracting both explicit and implicit costs from total revenue. Her total revenue is $15,000 (2,000 cups x $2.50 + 4,000 hours x $2.50). Explicit costs are $9,000. Implicit costs include the forgone interest from her savings, which is $12,000 ($400,000 x 3%). Economic profit = $15,000 - $9,000 - $12,000 = -$6,000.

Scenario 13-12 Ariana Withdrew $400,000 Out of Her Personal Savings Account and Account