Question

Suppose Marv used to work for a garbage collection firm, where he earned a standard wage. After some good luck, Marv was able to establish his own garbage collection firm. Suppose Marv's new business has the following revenues and costs Total Revenue $1.53000 Rent on Landfill Interest Payments on Capital $50,000 Wages Paid Forgone Wages General Equipment & Utilities $22,000 Depreciation What is the economic profitfor Marv's new business venture? $100,000 $40,000 $525,000 $3,000 O a. $790,000 O b. $1,315,000 O c. $1,840,000 d. $1,368.000

Answer 1

Economic profit is calculated by taking into account both the implicit and the explicit cost.

Calculate the economic profit -

Economic profit = Total revenue - Rent on landfill - Interest payments on capital - wages paid - Foregone wages - General equipment and utilities - depreciation

Economic profit = $1,530,000 - $100,000 - $50,000 - $40,000 - $525,000 - $22,000 - $3,000

Economic profit = $790,000

The economic profit for Marv's new business venture is $790,000.

Hence, the correct answer is the option (a)