As a server you earn $30000 per year, including tips. Someone offers you a new job as an economic consultant, which pays $100,000 per year. To be a consultant, you’ll need to rent an office, purchase supplies, and buy new computer equipment. Which of the following can we conclude?

(A) If the explicit cost for the consulting job is $20,000 per year, your economic profit is equal to $80,000.
(B) If the explicit cost for the consulting job is $25,000 per year, your economic profit is equal to $45000.
(C) If the explicit cost for the consulting job is $30,000 per year, your accounting profit is equal to $40000.
(D) If the explicit cost for the consulting job is $20,000 per year, your accounting profitis equal to $50000.

(B) If the explicit cost for the consulting job is $25,000 per year, your economic profit is equal to $45000.

Explanation:

Economic profit is obtained by substracting explicit (monetary) costs, and implicit (opportunity) costs, from total earnings.

In this case, the earnings for working as an economic consultant are $100,000. The implicit, opportunity cost is the $30,000 that are given up because of quitting the serving job. If the explicit cost of renting an office, purchasing supplies and buying a computer is $25,000, then, we have the following equation:

Economic profit = earnings - explicit costs - implicit costs

                          = $100,000 - $25,000 - $30,000

                          = $45,000

if you use only 25 for your entertainment and only 200 for the groceries that you really need and take out the 50 per month for the computer then that should be enough