Alex has been working as a chef in a large restaurant for many years. He has been earning a salary of $60,000 per year. He has always dreamt of starting a catering business. One day, he decides to do it. He quits his job. He needs money to pay costs for the business, so he withdraws $50,000 from his bank savings account, which had been earning 4% interest revenue. He hires an assistant and a kitchen; and buys some ingredients for cooking ($20,000). In the first year, he sells $80,000 worth of food; pays his assistant $25,000; and pays $12,000 for the hire of the kitchen. What is his economic profit for the year?

Question

BlackTom AI · Accepted Answer

Economic profit equals total revenue minus both explicit and implicit costs, so compute revenue and then subtract all actual (explicit) payments plus opportunity (implicit) costs.

1) Relevant concepts
- Explicit costs: actual out-of-pocket payments made for the business (assistant wage, kitchen hire, ingredients).
- Implicit costs (opportunity costs): income Alex forgoes by starting the business (his former salary) and the interest he forgoes by withdrawing savings.
- Economic profit = Total revenue − (Explicit costs + Implicit costs). Accounting profit = Total revenue − Explicit costs.

2) Step-by-step reasoning and numbers
- Total revenue: $80,000 (sales).
- Explicit costs:
  - Assistant: $25,000
  - Kitchen hire: $12,000
  - Ingredients: $20,000
  Sum explicit = 25,000 + 12,000 + 20,000 = $57,000.
- Implicit costs:
  - Foregone salary = $60,000 (what he would have earned working as a chef).
  - Foregone interest on withdrawn savings = 4% of $50,000 = 0.04 × 50,000 = $2,000.
  Sum implicit = 60,000 + 2,000 = $62,000.
- Total economic cost = Explicit + Implicit = 57,000 + 62,000 = $119,000.

3) Calculation of economic profit
- Economic profit = Revenue − Total economic cost = 80,000 − 119,000 = −$39,000.

4) Why this is correct
- The principal $50,000 withdrawn is not itself an economic cost; it’s a conversion of asset to cash. The real cost is the interest income he gave up (the opportunity cost), which is $2,000. Including the foregone salary captures the full opportunity cost of his time. Subtracting both explicit and implicit costs gives the economic profit of −$39,000.

5) Why other choices are incorrect
- a) −$87,000 results from incorrectly treating the $50,000 withdrawn as an additional cost (80 − [60 + 25 + 12 + 20 + 50] = −87,000). The principal withdrawal is not a cost.
- c) $20,000 and d) $23,000 are positive figures that ignore implicit costs. In particular, accounting profit = 80,000 − 57,000 = $23,000 (option d), but economic profit must subtract the $62,000 implicit costs as well.

6) Conclusion
- Therefore, Alex’s economic profit is −$39,000, matching choice b.

类似问题

Positive economic profit is the same as?

Economic profit is calculated by

Normal profit occurs when

Economic profit is calculated by

经济利润的计算方法是：

更多留学生实用工具

智能学习助手

风格化写作助手

论文查重助手

文献引用助手

课堂转译助手

课堂笔记助手

Quiz搜索助手

学校历年真题

智能刷题助手

智能匹配练习

希望你的学习变得更简单