Craig quit a job earning $12,00 . per year to open his own lawn-care service. Yesterday, he was offered a job earning $20,00 . per year at Home Depot, but he turned it down to continue running his lawn-care service. Assuming that his total revenue (= P
× Q) has not changed, (a) explain the impact of this job offer on Craig's economic profit, and (b) explain the impact of this job offer on his normal profit.
a . The opportunity cost of Craig's time is an implicit cost of his lawn-care business, and should be
deducted from his total revenues to find his economic profit. Since this implicit cost climbed by $8,00 .
per year yesterday, Craig's economic profit has fallen by $8,000.
b. Craig's normal profit is found by adding together all of his implicit costs, and so has risen by $8,00 .
since yesterday.
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