Hiro owns and operates a small business that provides economic consulting servic

Question

Hiro owns and operates a small business that provides economic consulting services. During the year he spends $57,000 on travel to clients and other expenses. In addition, he owns a computer that he uses for business. If he didn’t use the computer, he could sell it and earn yearly interest of $100 on the money created through this sale. Hiro’s total revenue for the year is $100,000. Instead of working as a consultant for the year, he could teach economics at a small local college and make a salary of $50,000.

What is Hiro's economic profit?

Explanation / Answer

Economic profits = Total Revenue - Total cost ( Implicit cost + explicit cost )

Total revenue =$100,000

Expilcit cost = $57,000

Implicit cost = $100 + $50,000 = $ 50,100

Economic profits = 100,000 - 57,000 - 50,100 = - $7100

Thus, he isearning economic losses.

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