The income of other entrepreneurs in the shoe shine business = $10,000
Joe's rent payment = $2,000 a year
Joe's revenue = $15,000 a year. He borrowed $1,000 at 20% interest rate to buy equipments.
At the end of one year, he was offered $500 (for business and equipment). Determine annual explicit costs, implicit costs and economic profit.
Explanation of Solution
Joe's annual explicit costs are given below:
Joe's annual implicit costs are given below:
Therefore, Joe's economic profit for the year is given below:
Implicit Costs: The implicit cost is also called imputed cost or indirect cost. Implicit costs are the
Explicit Costs: The explicit cost is a direct cost and known as out of pocket costs. It involves the expenditure done on the use of inputs in the production process by a firm.
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Chapter 14 Solutions
Foundations of Economics (8th Edition)
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