Answer to Question #142325 in Finance for Mr. Dinesh Pal Singh

Question

6. Sharon Smith is a full-time homemaker and also is an excellent seamstress. She has material for which she paid $5 per yard several years ago. The material has increased in value during that time and could be sold back to the local fabric shop for $15 per yard. Sharon is considering the use of that material to make dresses that she would sell to her friends and neighbors. She estimates that each dress would require four yard of materials and four hours of her time, which she values at $10 per hour. If the dress could be sold for $90 a piece, could Sharon earn an economic profit by making and selling the dresses?

Answer 1

The economic profit per piece is:

EP = Total Revenue - Explicit cost - Implicit cost $= 90 - (5×4 + 10×4) - (15 - 5)×4 = -10.$

So, Sharon could not earn an economic profit by making and selling the dresses.