Question

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.

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: