How do I calculate economic profit? (Just the correct formula may help) I was gi

Question

How do I calculate economic profit? (Just the correct formula may help)

I was given these figures. Sonya used to sell real estate and earn $25,000 a year, but now she sells greeting cards. Normal profit for the retailers of greeting cards is $14,000. Sonya used $4,000 of her savings to start her business. Over the past year Sonya bought $10,000 worth of cards. She sold these cards for $58,000. Sonya rents a shop for $5,000 a year and spends $1,000 in utilities. Sonya owns a cash register which she bought for $2,000 with savings. Her bank pays 3% a yr. on savings.

Explanation / Answer

Economic profit is equal to the total revenue minus total cost, with total cost equaling the opportunity cost of production. The opportunity cost consists of resources bought, resources own and resourced supplied. The resources Sonya bought include, $4,000 to start the business, $10,000 worth of cards, $5,000 for shop rental, $1,000 for utilities, $2,000 for a cash register. Which equals = $22,000 in resources bought. Now, you have the resources supplied which include the normal profit and the forgone wages, The normal profit is $14,000 and the forgone wages is the amount she would earn in her old job, which is $25,000 so total of $39,000. Since her bank pays 3% a yr on her savings, which total $6000, this adds $180 to her total revenue. Her total revenue equals $58,000 since that's how much she made selling the cards plus $180 so 58180 You substract 58180 from (39,000 + 22,000), which is the opportunity cost = -2810, which is the economic profit, she is losing money since the value is negative. Hope this helped.

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