Question

Scenario: Suppose you are earning $57,000 a year as a sales representative for a car dealership at some point you decide to open a used car dealership to sell used cars. You invest $30,000 of savings that have been earning you $2000 per year. And you decide that your new firm will occupy a parking lot that you own and have been renting out for $6000 per year. You hire one clerk to help you in the store, paying her $38,000 annually and annual utilities $23,000. Include your entrepreneurial talent that is worth $8,00.00. A year after you opened the car dealership, you total up your account and find the following

                        (A) Total Sales Revenue $550,00

                        (B) Cost of Buying Used Cars            $300,00

                       (C) Clark Salaries                                  $38,000

                        (D) Total Utilities $23,000

Refer to the above table calculate the Economic Profit

Answer 1

Ans: Economic profit is $450,200

Explanation:

Total Explicit cost = $30,000 + $38,000 + $23,000 = $91,000

Total Implicit cost / Opportunity cost = $2,000 + $6000 + $800.00 = $8800

Economic profit = Total Revenue - Total Explicit cost - Total Implicit cost / Opportunity cost

= $550,000 - $91,000 - $91,000

= $550,000 - $99,800

= $450,200