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John owns John's Juice Emporium. In the previous year, John's Juice had the following revenues and costs: Revenues $250,000 Supplies = $30,000 Utilities $15,000 Employee Salaries = $10,000 John's Salary = $20,000 John has an option of close his juice business and renting out the building for $60,000 a year. Additionally, John has a job offer that would offer a salary of $90,000 per year and another job offer that would offer him $50,000 per year. John can only work one job at any time. What is the economic profit of operating John's Juice Emporium? = $85,000 $25,000 -$25,000

John owns John's Juice Emporium. In the previous year, John's Juice had the following revenues and costs: Revenues $250,000 Supplies = $30,000 Utilities $15,000 Employee Salaries = $10,000 John's Salary = $20,000 John has an option of close his juice business and renting out the building for $60,000 a year. Additionally, John has a job offer that would offer a salary of $90,000 per year and another job offer that would offer him $50,000 per year. John can only work one job at any time. What is the economic profit of operating John's Juice Emporium? = $85,000 $25,000 -$25,000

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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**Case Study: Economic Profit Analysis for John's Juice Emporium** John owns John's Juice Emporium. In the previous year, John's Juice had the following revenues and costs: - **Revenues:** $250,000 - **Supplies:** $30,000 - **Utilities:** $15,000 - **Employee Salaries:** $10,000 - **John’s Salary:** $20,000 ### Additional Opportunities: John has an option to close his juice business and rent out the building for $60,000 a year. Additionally, John has a job offer that would offer a salary of $90,000 per year and another job offer that would offer him $50,000 per year. John can only work one job at any time. ### Question: What is the economic profit of operating John's Juice Emporium? ### Options: - A) $85,000 - B) $25,000 - C) -$25,000 - D) -$85,000 ### Analysis: To calculate the economic profit, we must consider the opportunity costs along with the explicit costs. #### Explicit Costs: - Supplies: $30,000 - Utilities: $15,000 - Employee Salaries: $10,000 - John’s Salary: $20,000 Total Explicit Costs = $30,000 + $15,000 + $10,000 + $20,000 = **$75,000** #### Opportunity Costs: 1. Highest alternative salary John could earn: $90,000 2. Rental income from the building: $60,000 Total Opportunity Costs = $90,000 + $60,000 = **$150,000** #### Economic Profit Calculation: Economic Profit = Total Revenues - (Explicit Costs + Opportunity Costs) Economic Profit = $250,000 - ($75,000 + $150,000) Economic Profit = $250,000 - $225,000 Economic Profit = **$25,000** Thus, the correct answer is **B) $25,000**.
Transcribed Image Text:**Case Study: Economic Profit Analysis for John's Juice Emporium** John owns John's Juice Emporium. In the previous year, John's Juice had the following revenues and costs: - **Revenues:** $250,000 - **Supplies:** $30,000 - **Utilities:** $15,000 - **Employee Salaries:** $10,000 - **John’s Salary:** $20,000 ### Additional Opportunities: John has an option to close his juice business and rent out the building for $60,000 a year. Additionally, John has a job offer that would offer a salary of $90,000 per year and another job offer that would offer him $50,000 per year. John can only work one job at any time. ### Question: What is the economic profit of operating John's Juice Emporium? ### Options: - A) $85,000 - B) $25,000 - C) -$25,000 - D) -$85,000 ### Analysis: To calculate the economic profit, we must consider the opportunity costs along with the explicit costs. #### Explicit Costs: - Supplies: $30,000 - Utilities: $15,000 - Employee Salaries: $10,000 - John’s Salary: $20,000 Total Explicit Costs = $30,000 + $15,000 + $10,000 + $20,000 = **$75,000** #### Opportunity Costs: 1. Highest alternative salary John could earn: $90,000 2. Rental income from the building: $60,000 Total Opportunity Costs = $90,000 + $60,000 = **$150,000** #### Economic Profit Calculation: Economic Profit = Total Revenues - (Explicit Costs + Opportunity Costs) Economic Profit = $250,000 - ($75,000 + $150,000) Economic Profit = $250,000 - $225,000 Economic Profit = **$25,000** Thus, the correct answer is **B) $25,000**.
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