An economic profit or loss is the difference between the revenue received from the sale of an output and the costs of all inputs used, as well as any opportunity costs. In calculating economic profit, opportunity costs and explicit costs are deducted from revenues earned.
Economic profit = revenues - explicit costs - opportunity costs
Opportunity costs can be used for a deeper analysis of business decisions, specifically when alternatives are available. Companies may look at opportunity costs when considering production levels for different types of products that they produce collectively but in varying quantities.
Opportunity costs are somewhat arbitrary and can be known as a type of implicit cost. They can vary depending on management’s estimations and market circumstances. Generally, opportunity cost will be the accounting profit that could have been achieved from making an alternative choice.
Correct answer is Option (D)
Earning from law firm = $223,000 per year
Revenue from her business = $347,000 per year.
Explicit loss from her business = $163,000 per year
Economic Profit = Revenue from her business - Explicit loss from her business = $347,000-$163,000=$184,000.