Question

The neighborhood ice cream shop finds that when it charges $3 per ice cream cone, its total revenues are $90,000. It has total variable costs of $30,000 and total fixed costs of $40,000. From this we can infer the:a. shop should be moved because the rent is too high.

b. price is less than average total cost.

c. economic profits are $20,000.

d. shop will be closed in the long run.

e. shop sells 10,000 ice cream cones.

Answer 1

The correct answer is Option C.

Step-by-step explanation:

Economic profit is simply the difference between the total revenue generated from the sale of an output minus the opportunity cost and all costs used in the production of that output.

The costs used in the production of that output are regarded as explicit costs.

Opportunity cost is subjective and judgemental and usually determined by management.

Based on the question, the Economic cost = Total revenue - Total variable cost - Total fixed cost

Economic cost = $90,000 - $30,000 - $40,000 = $20,000