Question

Maoine Tom's annual salary as an assistant store manager is $30000. He owns a building that rents for $10000 yearly, and his financial assets generate $1.0 per year in interest. One day, after deciding to be his own boss, he quits his job, evicts his tenants, and uses his financial assets to establish a bicycle repair shop. To run the business, he outlays $1500 in cash to cover all the costs involved with running the business and earns revenues of $50000. What are Tom's economic profits?

Answer 1

Tom's economic profits are $48,500.

Step-by-step explanation:

To calculate Tom's economic profits, we need to subtract his explicit costs from his total revenues. Economic profit = Total revenues - Explicit costs.

Total revenues are $50,000, which includes revenue from his bicycle repair shop. Explicit costs include his outlay of $1,500 in cash to cover the costs of running the business. We subtract this amount from his total revenues: $50,000 - $1,500 = $48,500. Therefore, Tom's economic profits are $48,500.