A business owner makes 50 items a day. She spends 8 hours in producing those items. If hired elsewhere she could have earned $10 an hour. The item sells for $10 each. Production occurs seven days a week. If the explicit (other production) costs total $10,000 a month the economic profit for the month (30 working/selling days) equals:
a. $2,600
b. $5,000
c. $2,240
d. $11,760
Answer: a. $2,600
Economic profit ($) = Revenue - Explicit cost - Implicit cost = (Price x Quantity x Number of days) - Explicit cost - Salary given up
= (10 x 50 x 30) - 10,000 - (10 x 8 x 30) = 15,000 - 10,000 - 2,400 = 2,600
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