Question

At a cost of 178,000 to Sandhill Company, rental payments of 30,044 in 6 years.

Options:
A) 20,001
B) 26,000
C) 35,000
D) 40,956

Answer 1

The firm's economic profit last year was -$182,264.

Step-by-step explanation:

To calculate the firm's economic profit, we need to subtract the explicit costs (rental payments) and the implicit costs (opportunity cost of owning the land) from the monetary revenue.

The rental payments over 6 years amount to $30,044 per year, so the total rental cost is $30,044 x 6 = $180,264.

The opportunity cost of owning the land is $30,000 per year, so over 6 years it is $30,000 x 6 = $180,000.

The economic profit last year is therefore the difference between the revenue and the total costs: $178,000 - ($180,264 + $180,000) = -$182,264.