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21 September, 10:23

Suppose a sole proprietorship is earning total revenues of $100,000 and is incurring explicit costs of $75,000. If the owner could work for another company for $30,000 a year, we would conclude that:a. the firm is incurring an economic loss.

b. implicit costs are $25,000.

c. the total economic costs are $100,000.

d. the individual is earning an economic profit of $25,000.

Answers (1)
  1. R
    21 September, 14:00
    0
    a. the firm is incurring an economic loss.

    Explanation:

    The computation of the economic profit is shown below:

    = Total revenues - total cost

    where,

    Total cost would be

    = explicit cost + implicit cost

    = $75,000 + $30,000

    = $105,000

    The implicit cost reflects the opportunity cost i. e $30,000

    So, the economic loss would be

    = $105,000 - $100,000

    = $5,000

    Hence, there is an economic loss of $5,000
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