vik r asked:
Tanya imports sweaters from Peru and sells them from her home. She collects $400,000 in revenue a year, and spends $200,000 on the sweaters and shipping costs, as well as $25,000 on accounting services and utilities. She used to make $100,000 per year working for an advertising agency. Now she works out of the basement of her house, for which she doesn’t have any other marketable use. She has no other expenses.
2.2. Tanya’s economic profit is:
A. $75,000
B. -$25,000
C. $175,000
D. $100,000
A. $75,000
“Economic profit” includes opportunity costs, so Tanya’s economic profit is the $400,000 in revenue minus the $200,000 in costs minus the $25,000 for accounting services and utilities minus the $100,000 she could have earned at her advertising job. The numbers add up to $75,000.