Question

Maneet owns and manages a restaurant. She pays herself a monthly wage of $2,000. Monthly revenue for her restaurant is $25,000, and explicit costs are $20,000 (including her wage). If Maneet instead worked at a different restaurant, she could earn $3,000 per month. The economic profit for the restaurant is

O $5,000
O $8,000
O $0
O $4,000

Answer 1

The economic profit for Maneet's restaurant is calculated by subtracting both the explicit costs of $20,000 and the implicit cost of foregone wages ($3,000) from the total revenue of $25,000, resulting in an economic profit of $2,000 per month.

Step-by-step explanation:

To determine the economic profit of Maneet's restaurant, we need to account for both explicit and implicit costs. We start with the monthly revenue of $25,000 and subtract the explicit costs of $20,000, which includes Maneet's wage of $2,000.

We then must consider the implicit cost, which is the opportunity cost of what Maneet could earn elsewhere, in this case, $3,000 at a different restaurant. So, the economic profit is calculated by subtracting both the explicit and the implicit costs from the total revenue.

Using the formula: Economic profit = total revenues - explicit costs - implicit costs, we get $25,000 - $20,000 - $3,000 = $2,000.

Therefore, the economic profit for Maneet's restaurant is $2,000 per month.