Scenario 13-8
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 13-8.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 by subtracting both explicit and implicit costs from total revenue. Ellie's explicit costs are $55,200 ($15,000 + $3,000 + $1,000 + $1,200 + $35,000). Her implicit costs include her foregone salary of $80,000 and the foregone interest of $500, totaling $80,500. To achieve $50,000 in economic profit, her revenue must cover $55,200 + $80,500 + $50,000 = $185,700.

Scenario 13-8 Ellie Has Been Working for an Engineering Firm and Earning