Question

Bev is opening her own court-reporting business. She financed the business by withdrawing money from her personal savings account. When she closed the account, the bank representative mentioned that she would have earned $300 in interest next year. If Bev hadn’t opened her own business, she would have earned a salary of $25,000. In her first year, Bev’s revenues were $30,000, and she spent $1,000 on materials and supplies. Which of the following statements is correct? a. Bev's total explicit costs are $25,300.b. Bev's accounting profits exceed her economic profits by $300.c. Bev's total implicit costs are $300.d. Bev's economic profit is $4,700.

Answer 1

Answer:

d. Bev's economic profit is $4,700.

Explanation:

Economic profit can be defined as the difference between a firm or an organization's Total revenue and the firm or organization's opportunity cost.

For Bev, her Total revenue is given in the question above as $30,000

If she had not resigned Bev would have been earning $25,000. This amount is referred to as Bev's Opportunity cost.

Bev would have earned a $300 interest if she didn't close her account . This is another opportunity cost for Bev.

Therefore, the next step is to add up Bev's opportunity costs and subtract them from her Total revenue and this would give us Bev's Economic profit.

Hence, the formula is given as :

Economic Profit = Total Revenue - Opportunity costs

Economic Profit = $30,000 - ( $25,000 + $300)

Economic Profit = $30,000 - $25,300

Economic Profit = $4,700

Therefore, Bev's Economic profit is $4,700.

Answer 2

Answer:

Bev's economic profit is $4,700.

Explanation:

Bev is opening her own court-reporting business. She financed the business by withdrawing money from her personal savings account. When she closed the account, the bank representative mentioned that she would have earned $300 in interest next year. If Bev hadn’t opened her own business, she would have earned a salary of $25,000. In her first year, Bev’s revenues were $30,000, and she spent $1,000 on materials and supplies. Therefore Bev's economic profit is $4,700.