Question

A bartender is considering opening his own bar. To do so, he would have to quit his current job, which pays $40,000 a year, and take over a store building that he owns and currently rents to his brother for $12,000 a year. His expenses at the bar would be $100,000 for food & drinks and $24,000 for utilities & maintenance. He expects to generate $160,000 in revenue. If the bartender starts his bar, what will his economic profit be?

a. $ 24,000

b. $ - 4,000

c. $ - 16,000

d. $ 160,000

e. $ 36,000

Answer 1

Economic Profit = Total revenue - (Implicit cost + Explicit cost)

= $160,000 - {($100,000+$24,000) + ($40000 + $12000)

= $160000 -$ 176000

= $ - 16000

Therefore answer is option C. $ -16000