Question

Suppose Tobias has been offered two jobs - an industry job and a teaching job. He's considering taking the industry job. The teaching job has a salary of $80,000. In addition to the salary, Tobias values the flexibility of a teaching job at $15,000 a year. The industry job requires buying more fancy clothes and those will cost $600. The industry job pays $100,000. In addition to the industry job's salary, Tobias values that they don't have to work on the weekend at the industry job at $10,000.

What is the explicit cost for the year for the industry job?

What is the implicit cost for the year for the industry job?

What is the accounting profit for the industry job?

What is the economic profit for the industry job?

What salary for the industry job is needed for Tobias to receive a normal profit?

Answer 1

a) explicit cost for the industry job is the direct cost which is the cost of fancy clothes and this is $600

b) Implicit cost is the total value lost due to teaching

= $80,000+$15,000 = $95,000

(c) Accounting Profit= Total Revenue - Explicit Cost

$100,000+$10000 -$600 = $109400

(d) Economic Profit

= Accounting profit - Implicit Cost

= $109,400 - $95,000

= $14,400

(e) Salary to normal profit

= Current Salary - Economic Profit

= $100,000 - $14,400

= $85,600 is the answer to this question