**Title: Calculating Business and Economic Profit****Scenario:**A small business owner earns $50,000 in revenue annually. The explicit annual costs equal $30,000. The owner could work for someone else and earn $25,000 annually. The owner’s business/accounting profit is _______ and the economic profit is _______.**Options:**- $20,000, $20,000- $25,000, -$5,000- $25,000, $20,000- $20,000, -$5,000**Explanation:**To determine the correct answer, we'll calculate both the accounting and economic profits:1. **Accounting Profit:** - Formula: Accounting Profit = Total Revenue - Explicit Costs - Calculation: $50,000 (revenue) - $30,000 (costs) = $20,0002. **Economic Profit:** - Formula: Economic Profit = Total Revenue - (Explicit Costs + Implicit Costs) - Implicit Costs in this scenario are the forgone salary, which is $25,000. - Calculation: $50,000 (revenue) - ($30,000 + $25,000) = -$5,000Based on these calculations, the correct answer is:- Accounting Profit: $20,000- Economic Profit: -$5,000**Correct Option:**- $20,000, -$5,000

The profit is the difference between the total revenue and total cost of production. The explicit cost is incurred in the monetary term while producing goods and services. The implicit costs are not incurred in the direct monetary forms. These costs are in form of opportunity cost of production. Answer: (D) Total Revenue = TR -TC Accounting profit does not consider the implicit cost while the economic profit accounts for the implicit cost as well. Accounting profit = TR - Explicit cost TR = 50,000 Explicit cost = 30,000 Accounting Profit = 50,000 -30,000 = 20,000 Economic Profit = TR - Explicit cost - implicit cost Implicit cost : Opportunity forgone : 25,000 Economic profit = 50,000 -30,000 -25000 = -5000 Therefore, Right answer: (D)

Business

Economics

A small business owner earns $50,000 in revenue annually. The explicit annual costs equal $30,000. The owner could work for someone else and earn $25,000 annually. The owner's and the economic profit is business/accounting profit is O $20,000, $20,000

A small business owner earns $50,000 in revenue annually. The explicit annual costs equal $30,000. The owner could work for someone else and earn $25,000 annually. The owner's and the economic profit is business/accounting profit is O $20,000, $20,000

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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