Question

A business owner makes 50 items a day. She spends 8 hours in producing those items. If hired elsewhere she could have earned $10 an hour. The item sells for $10 each. Production occurs seven days a week. If the explicit costs total $10,000 a month the economic profit for the month equals:_____--
a. $2,600
b. $5,000
c. $2,240
d. $11,760

Answer 1

Answer:

Option (a) is correct.

Explanation:

Given that,

Explicit costs = $10,000

Here, the implicit cost is the cost of sacrificing money income from job:

= $10 per hour × 8 hours a day × 30 days

= $2,400

Revenues:

= Items produced in a day × Selling price of each × 30 days

= 50 × $10 × 30

= $15,000

Therefore,

Economic profit for the month:

= Revenues - Explicit costs - Implicit cost

= $15,000 - $10,000 - $2,400

= $2,600