Question 35

The amount of economic profit made by the economist is $0.

Economic profit is calculated by subtracting both explicit and implicit costs from total revenue. In this case, the total revenue of the consulting firm was $150,000, while the business expenditure was $70,000 and the opportunity cost of leaving her teaching position was $80,000. Therefore, the economic profit is $150,000 - $70,000 - $80,000 = $0.

A) -$3,000

This option suggests an economic profit of -$3,000, which would imply that the total costs exceeded the revenue by that amount. However, the calculations show that the costs exactly equate to the revenue, leading to an economic profit of $0, making this option incorrect.

B) $5,000

Choosing this option would mean that the economist earned an economic profit of $5,000. For this to be true, the revenue would need to exceed the total costs by $5,000. However, the calculations indicate that the revenue and costs are equal, thus ruling out the possibility of a positive economic profit.

C) $0

This option correctly identifies the economic profit as $0. The total revenue of $150,000 minus the total costs of $150,000 (which includes both business expenses and the opportunity cost of her salary) results in no economic profit, confirming this option as correct.

D) -$2,000

Selecting -$2,000 as the economic profit indicates that the economist would have incurred a loss of that amount. This is incorrect because the total costs match the revenue, which means there is no loss as calculated, leading to an economic profit of $0.

Conclusion

The correct answer is $0, as it accurately reflects the economic profit calculated from the total revenue and combined costs of the firm. All other options incorrectly state the economic profit by miscalculating or misunderstanding the relationship between revenue and costs. Thus, the analysis confirms that the economist neither gained nor lost financially from her decision to leave her teaching position.