Question at position 2 A business owner makes 1,000 items a day. Each day she contributes eight hours to produce those items. If hired, elsewhere she could have earned $250 an hour. The item sells for $15 each. Production does not stop during weekends. If the explicit costs total $150,000 for 30 days, the economic profit for the month equals:A) $300,000.B) $60,000.C) $450,000.D) $240,000.Clear my selection

Question

Question at position 2 A business owner makes 1,000 items a day. Each day she contributes eight hours to produce those items. If hired, elsewhere she could have earned $250 an hour. The item sells for $15 each. Production does not stop during weekends. If the explicit costs total $150,000 for 30 days, the economic profit for the month equals:A) $300,000.B) $60,000.C) $450,000.D) $240,000.Clear my selection

BlackTom AI · Accepted Answer

To tackle this problem, start by separating revenues, explicit costs, and the owner’s opportunity cost to understand what each number represents.

Option A: 300,000. This value matches the accounting profit, which is total revenue minus explicit costs (not subtracting any opportunity costs). However, economic profit should also subtract the implicit cost of the owner’s time, so this option ignores a key component of economic profit.

Option B: 60,000. This figure corresponds to the owner’s potential earnings lost by not working elsewhere (the opportunity cost) over the month, not to the profit produced by the business after all costs. It does not reflect net profit; it’s an input used to compute economic profit, not the resulting profit itself.

Option C: 450,000. This is the total revenue generated from selling 1,000 items per day at $15 each for 30 days. It does not account for any costs, so it cannot represent profit.

Option D: 240,000. This number comes from starting with accounting profit (revenue minus explicit costs = 450,000 − 150,000 = 300,000) and then subtracting the opportunity cost of the owner's time (8 hours/day × $250/hour × 30 days = 60,000). The calculation 300,000 − 60,000 equals 240,000, which is the economic profit.

In summary, the full decomposition shows:
- Revenue over the month = 1,000 items/day × $15/item × 30 days = 450,000
- Explicit costs over the month = 150,000
- Accounting profit = 450,000 − 150,000 = 300,000
- Owner’s opportunity cost = 8 hours/day × $250/hour × 30 days = 60,000
- Economic profit = 300,000 − 60,000 = 240,000

Thus, each option represents a different component or misinterpretation: A) uses accounting profit only, B) captures only opportunity cost, C) uses revenue without costs, and D) reflects the complete economic profit calculation.

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