Final answer:
Eryn, a corporate lawyer, is considering opening her own legal practice and needs to determine if it would be profitable. She must consider both explicit costs, such as rent and salaries, and implicit costs, such as the opportunity cost of leaving her current job. By comparing her anticipated revenue with her total costs, Eryn can determine if she would have a positive accounting profit.
Step-by-step explanation:
Eryn is a corporate lawyer considering opening her own legal practice. To determine if her practice would be profitable, Eryn needs to consider both the explicit costs, which are the actual expenses associated with running the practice, as well as the implicit costs, which include the opportunity cost of quitting her current job.
In the example given, Eryn's explicit costs include the rent for her office ($50,000 per year) and the salary of a law clerk ($35,000 per year). However, her implicit cost is the annual salary of $125,000 that she would be forgoing by leaving her current job. Therefore, Eryn's total costs would be $185,000 ($50,000 + $35,000 + $125,000).
To determine if her practice would be profitable, Eryn would need to compare her anticipated annual revenue of $200,000 with her total costs of $185,000. If her revenue exceeds her costs, she would have a positive accounting profit. However, it's important to note that Eryn would still be earning $10,000 less per year compared to her current job.