Question

In: Economics

You quit your job (which paid an annual wage of $40,000) inorder to start your...

You quit your job (which paid an annual wage of $40,000) in order to start your own business. You run your business out of a room in your home which you formerly rented out to a college student for $1,000 per month. Your monthly mortgage and homeowners insurance costs total $2,000. You hire an assistant at an annual wage of $20,000. Costs for materials for your business are $100,000 per year. Additional expenses for your business total $10,000. During your first year of business you sell 9,000 units of product at $38 per unit. How much is your economic profit?

Solutions

Expert Solution

economic profit = total revenue - all implicit expenses -all explicit expenses

where, total revenue = 38*9000 = 342000

implicit expenses = 40000 + 12*1000 = 52000

explicit expenses = 12*2000 + 20000 + 100000 + 10000 = 154000

Thus, economic profit = 342000 - 52000 - 154000 = 136000.

Rahul Sunny answered 2 years ago
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