Answer:
Economic Profit = $125,000
Explicit Cost = $15,000
Explanation:
Total revenue from the tax and book keeping business = $150,000
Total expenses for business = $15,000
Supplemental job given up = $10,000
Explicit cost is defined as the actual payment which is made to a third person, in order to the current business.
Here explicit cost is NIL
Opportunity cost is the next best earnings foregone, in order to get the current earnings.
Here opportunity cost = $10,000
Economic profit = Revenue - Cost - Explicit cost - Opportunity cost = $150,000 - $15,000 - $10,000 = $125,000
Final Answer
Economic Profit = $125,000
Explicit Cost = $0
Answer:
Economic Profit is $125000 while the explicit cost is $15000.
Explanation:
Explicit costs are the costs that are directly related to the business and requires an actual payment or an outflow of cash/resources from the business.
Implicit costs, on the other hand, are the opportunity cost of doing the business and includes the benefits foregone. These costs do not involve any cash or resource outflow from the business.
The economic profit is calculated by deducting the total explicit cost and the total implicit costs from the revenue.
The explicit costs here are the business expenses of $15000 while the implicit cost is the revenue foregone from in-home pet sitting of $10000.
Economic profit = 150000 - (15000 + 10000) = $125000
