(Scenario: Accounting and Economic Profit) Use Scenario: Accounting and Economic Profit.What is the implicit cost of Wang's Wicker Furniture Store? Scenario: Accounting and Economic Profit
Rather than put the $100,000 that his grandmother left him in a mutual fund that earns 5% each year,Tommy Wang quit his job,which paid $60,000 per year,and started Wang's Wicker Furniture Store.He rented a showroom for $20,000 for the year,purchased $60,000 in wicker furniture,and incurred costs of $40,000 for sales help and advertising.In his first year,his revenue was $150,000.

A) $7,000
B) $60,000
C) $65,000
D) $69,000

The implicit cost of Wang's Wicker Furniture Store is the opportunity cost of Tommy Wang quitting his job, which paid $60,000 per year. Therefore, the implicit cost is $60,000.

To calculate economic profit, we need to subtract both explicit and implicit costs from revenue.

Revenue = $150,000
Explicit costs = $20,000 (rent) + $60,000 (furniture) + $40,000 (sales help and advertising) = $120,000
Implicit costs = $60,000

Economic profit = Revenue - Explicit costs - Implicit costs
Economic profit = $150,000 - $120,000 - $60,000
Economic profit = $(30,000)

Since economic profit is negative, Tommy Wang would have been better off investing the $100,000 in the mutual fund, which would have earned him a positive return.

Therefore, the implicit cost of Wang's Wicker Furniture Store is $60,000, and the best choice is C.