# Paula Deen runs a seafood restaurant in Savannah, Georgia. Her total revenue last year was \$150,000. The rent on her restaurant was \$48,000, her labor costs were \$42,000, and her materials, food, and other variable costs were \$20,000.

Paula Deen runs a seafood restaurant in Savannah, Georgia. Her total revenue last year was \$150,000. The rent on her restaurant was \$48,000, her labor costs were \$42,000, and her materials, food, and other variable costs were \$20,000. Paula Deen could have worked as a cookbook writer and earned \$40,000 per year or as a chef in another restaurant and earned \$35,000. Paula Deen ‘s economic profit is equal to A. \$0.0 per year. B. \$5,000 per year. C. -\$35,000 per year. D. \$40,000 per year. Please explain here why the answer is B for question two with detail explanation of how to apply the formula

Economic profit = Revenue – [ rental costs + labor costs + materials , foods & variable costs + opportunity costs ]

Economic profit = \$ 150,000 – ( \$ 48,000 + \$ 42,000 + \$ 20,000 + \$ 35,000)

\$ 35,000 is choosen as the opportunity costs and not \$ 40,000 because the value of foregone opportunities is less by working as chef in another restaurant than to work as a cookbook writer .

Economic profit = \$ 5000

Asked on May 19, 2017 in