—–A business owner makes 1000 items a day. Each day shespends 8 hours producing those items. If hired, elsewhere she couldhave earned \$250 an hour. The item sells for \$15 each. Productionoccurs seven days a week. If the explicit costs total \$150,000 permonth, what is her economic profit? a. ?\$240,000 b. ?\$60,000 c.?\$300,000 d. ?\$450,000———————————————————————————————-

Economic profit = Total revenue – ( Explicit cost + Implicitcost)

• Implicit costs are the opportunity costs, or next bestalternative. In other words, it is the cost which we have tosacrifice in order to do some other thing. For example – in thisquestion, the business owner sacrifice a job where she can earn\$250 per hour. In this question she work for 8 hours so if shedecide to choose the job she could earn \$250 * 8 = \$2000 per dayand she can earn \$2000 * 30 =\$60000 in a month which she have tosacrifice for her own business. So implicit cost is \$60000.
• Explicit cost are the direct payments made to the others or thecash outflow. Here it is given that explicit cost is \$150000 permonth.
• Total revenue = price * quantity of output, in this questionthe item sells for \$15 I.e., price = \$15 and quantity of output is1000 items a day means in a month 1000*30 = 30000 units ofoutput.

Total revenue (TR) = price * quantity of output

TR = 15 * 30000

TR = 450000

Now we have all the values so we put these values of implicitcost, explicit cost and total revenue in the economic profit

Economic profit = TR – ( implicit cost + explicit cost)

Economic profit = \$450000 – ( \$60000 + \$150000)

Economic profit = \$ 240,000.

So correct ans is a) 240,000.

Option b) is incorrect because \$60,000 is implicit cost noteconomic profit.

Option c) is also incorrect because the value of the economicprofit is \$240000 not \$300000

Option d) is also incorrect because \$450000 is the total revenuenot the economic profit.

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