Question

Suppose that a sole proprietorship is earning total revenues of Rs. 100,000 and is incurring explicit costs
of Rs. 75,000. If the owner could work for another company for Rs. 30,000 a year, we would conclude that:
(a) The firm is incurring an economic loss of Rs. 5,000
(b) Implicit costs are Rs. 25,000
(c) The total economic costs are Rs. 100,000
(d) The individual is earning an economic profit of Rs. 25,000

Answer 1

Answer:

(A) The firm is incurring an economic loss of RS.5,000

Explanation:

Suppose a sole proprietorship is earning total revenues of $100,000 and is incurring explicit costs of $75,000. If the owner could work for another company for $30,000 a year, we can conclude that the firm is incurring an economic loss. Even though the owner of the company is earning more than 30,000 by working in another company his company is still in an economic loss.