Given:
Ms. Tree's total revenue of $98,000.
explicit costs per year
payment on the loan on boom lift truck $12,000
gasoline $4,000
miscellaneous equipment $16,000
implicit costs
earnings forgone by not working for mr. plow $45,000
the forgone income that the $50,000 invested in the boom lift truck could have earned if invested elsewhere
Explicit cost = 12,000 + 4,000 + 16,000 = 32,000
Implicit cost = 45,000 + 50,000 = 95,000
Economic profit or loss is computed by getting the difference from the revenue received from a sale of an output and the opportunity cost of the inputs.
Revenue: 98,000
less: explicit cost: (32,000)
Accounting Profit 66,000
less: implicit cost (95,000)
Economic loss (29,000)
There is an economic loss because Ms. Tree would have earned more had she stayed and worked for Mr. Plow and invested the money used in buying the boom lift truck.
