1. Definition of economic costs
Darnell lives in Dallas and operates a small company selling scooters. On average, he receives $714,000 per year from selling scooters. Out of this revenue from sales, he must pay the manufacturer a wholesale cost of $414,000. He also pays several utility companies, as well as his employees wages totaling $267,000. He owns the building that houses his storefront; if he choose to rent it out, he would receive a yearly amount of $3,000 in rent. Assume there is no depreciation in the value of his property over the year. Further, if Darnell does not operate the scooter business, he can work as a nurse and earn a yearly salary of $21,000 with no additional monetary costs, and rent out his storefront at the $3,000 per year rate. There are no other costs faced by Darnell in running this scooter company.
Identify each of Darnell’s costs in the following table as either an implicit cost or an explicit cost of selling scooters.
Implicit Cost
Explicit Cost
The wages that Darnell pays


The salary Darnell could earn if he worked as a nurse


The wholesale cost for the scooters that Darnell pays the manufacturer


The rental income Darnell could receive if he chose to rent out his showroom


Complete the following table by determining Darnell’s accounting and economic profit of his scooter business.
Profit
(Dollars)
Accounting Profit
Economic Profit