Question

The following is cost information for the Creamy Crisp Donut Company. Entrepreneur's potential earnings as a...

The following is cost information for the Creamy Crisp Donut Company.

Entrepreneur's potential earnings as a salaried worker = $60,000

Annual lease on building = $30,000

Annual revenue from operations = $250,000

Payments to workers = $100,000

Utilities (electricity, water, disposal) costs = $8,000

Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000

Entrepreneur's forgone interest on personal funds used to finance the business = $6,000

If, other things equal, Creamy Crisp's revenue rose to $284,000,

A. its implicit costs would exceed its economic costs.

B. it would suffer an economic loss.

C. it would earn a normal profit but not an economic profit.

D. its accounting profit would fall to $0.

Homework Answers

Answer #1

Option 3 is correct. The firm would earn a normal profit but not an economic profit. The detailed explanation along with calculations is given in following 2 images:

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