Question

Manisha could work for another firm making $10,000 per month, but she decides to open her own gourmet cheese store and pay herself $2,000 per month. In her first month of operations, she spends $6,000 on cheese, $1,000 on other items, and $2,500 on rent. She had a great opening month, and brought in revenues of $14,500. According to her accountant, what are Manisha's profits?

A. minus− $6,000

B. $3,000

C. minus− $5,000

D. $4,000

Answer 1

An implicit cost can be defined as the opportunity cost equal to what a firm give up for using the factor of production which it already owns and thus does not pay rent for it.

An explicit cost is defined as the direct payment made to others for using the resources and running a business. For instance, wage, rent and materials.

The amount which she pay herself is explicit cost= $2000

Explicit cost=cheese + other items + rent + salary to herself

=6000+1000+2500+2000

=$11,500

Total sales Revenue=$14,500

Accounting profit= Total revenue - total explicit cost

=14,500-11,500

=$3,000

Hence option b is the correct answer.