Question

Arlene makes carrings in the shape of the mascot of a local university, Last year, Arlene made 250 pairs of earrings, which she sold to the university bookstore for $10 cach. Arlene works out of her home; her only cost is $3 per pair of earrings for materials and $85 for tax help. If Arlene did not produce earrings, she would spend her time babysitting her nephews and make about $500 per year.

Which statement is true?

A) Arlene's cconomic profit is $1,665.

B) Arlene's total revenue is $2,500

C) Arlene's total implicit costs are $83.

D) Arlene's accounting profit is S1,65

Answer 1

Answer:

B) Arlene's total revenue is $2,500

Explanation:

As per given data

Revenue = 250 x $10 = $2,500

Expenses = ( 250 x $3 ) + $85 = $835

Economic Profit is calculated by deducting the opportunity cost  and monetary costs from the revenue. Whereas Accounting Profit can be calculated by deducting the only monetary costs from the revenue.  

Opportunity costs are all those losses which are faced for choosing an alternative like loss of interest income in case of investment in the business.

In Economic term opportunity costs is known as implicit cost and monetary cost as explicit cost. Formula are

Economic profit = Revenue - Implicit cost - Explicit Expenses

Placing values in the formula

Economic profit  = $2,500 - $835 - $500 = $1,165

Accounting profit = Revenue - Explicit cost

Placing values in the formula

Accounting profit = $2,500 - $835 = $1,665