Question

Tom quit his $65,000 a year corporate lawyer job to open up his own law practice. In Tom's first year in business his total revenue equaled $150,000. Tom's explicit cost during the year totaled $85,000. What is Tom’s economic profit for his first year in business?a. $0 b. $85,000 c. $20,000 d. s65,000

Answer 1

a. $0

Step-by-step explanation:

The economic profit is considers the opportunity cost while the accounting profit does not. The cost of the alternatives forgone is deducted from the explicit cost in the determination of economic profit.

Mathematically,

Economic profit = Revenue - (implicit + explicit costs)

= $150,000 - $85,000 - $65,000

= $0

He neither made a profit nor a loss economically.