Scenario 13-13
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?
A)$36,000
B)$35,950
C)$30,000
D)$29,950

Question

Quizplus · Accepted Answer

Annual implicit costs can be calculated as follows:
Implicit costs = Opportunity cost of using personal funds + Opportunity cost of not working as a tax preparer
Opportunity cost of using personal funds = 1% of $5,000 = $50
Opportunity cost of not working as a tax preparer = $6,000
Therefore, implicit costs = $50 + $6,000 = $6,050
Total costs (explicit + implicit) = $54,000 + $6,050 = $60,050
Annual economic profit = Total revenue - Total costs
Annual economic profit = $90,000 - $60,050
Annual economic profit = $29,950
Therefore, the annual economic profit of her cookie jar business is $29,950. The best choice is D.

Scenario 13-13 Christine Is an Artist Who Creates Custom Cookie Jars. Her