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

 

answer:

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

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