Question

A business owner makes 50 items a day. She spends 8 hours in producing those items. If hired elsewhere she could have earned $10 an hour. The item sells for $10 each. Production occurs seven days a week. If the explicit costs total $10,000 a month the economic profit for the month equals:

Answer 1

$2,600

Step-by-step explanation:

The computation of economic profit is shown below:

Economic profit = Revenues - Economic cost

where,

Economic cost = Explicit cost + Implicit (opportunity) cost

where,

Implicit cost

= $10 × 8 hours × 30 days

= $2400

And,

Explicit cost for a month = $10,000

So,

Economic cost is

= $10,000 + $2400

= $12,400

Now

The Revenue

= Price × quantity

= $10 × 50 items × 30 days

= $15,000

Finally

Economic profit is

= $15,000 - $12,400

= $2,600