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Juan Diego Quecano Hernandez
on Dec 19, 2024

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The following is cost information for the Creamy Crisp Donut Company.Entrepreneur's potential earnings as a salaried worker = $50,000Annual lease on building = $22,000Annual revenue from operations = $380,000Payments to workers = $120,000Utilities (electricity, water, disposal) costs = $8,000Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000Entrepreneur's forgone interest on personal funds used to finance the business = $6,000Creamy Crisp Donut Company

A) has lower explicit costs, than implicit costs.
B) is earning a normal profit but not an economic profit.
C) is earning an economic profit.
D) is suffering an economic loss, when implicit costs are considered.

Implicit Costs

The opportunity costs associated with a company's own resources, not directly paid for with cash but are the result of using assets instead of investing them elsewhere.

Economic Profit

The difference between total revenue and the total costs, including both explicit and implicit costs, unlike accounting profit which only considers explicit costs.

Explicit Costs

Direct financial payments made to acquire resources or services for business operations.

  • Work out the complete economic expenditures of a company, including explicit and implicit costs.
  • Contrast economic profit with accounting profit.
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Tiffany GriffinDec 25, 2024
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