Question

Suppose that a small business takes in monthly revenue of $100,000. Labor, rental, energy, and other purchased input costs are $70,000. The owner/entrepreneur could earn $5,000 per month in another job, and the owner/entrepreneur could get a return of $5,000 each month if she sold her business and invested the net proceeds in a financial asset, such as a treasury bond. Which of the following correctly describes her monthly economic profit? 55. If an SUV purchased in 2018 costs $50,000 and weighs 5,800 pounds, the maximum depreciation expense that can be taken is:

A. $50,000
B. $18,000
C. $16,000
D. $9,600 .

Answer 1

Answer and Explanation:

The economic profit is

Economic profit = Total revenue - (Explicit costs + Implicit costs)

where

Total revenue is $100,000

Explicit costs are $70,000

Implicit costs are $10,000 (opportunity costs)

Now

Economic profit = $100,000 - $70,000 - $10,000

= $20,000

In the case of small cars that within 6000 lbs, the depreciation should be capped at $18,000 for the first year

Hence, the option b is correct