2. Definition of economic costs

Lorenzo lives in Detroit and operates a small company selling drones. On average, he receives $833,000 per year from selling drones. Out of this revenue from sales, he must pay the manufacturer a wholesale cost of $464,000. He also pays several utility companies, as well as his employees wages totaling $278,000. He owns the building that houses his storefront; if he choose to rent it out, he would receive a yearly amount of $68,000 in rent. Assume there is no depreciation in the value of his property over the year. Further, if Lorenzo does not operate the drone business, he can work as a programmer and earn a yearly salary of $34,000 with no additional monetary costs, and rent out his storefront at the $68,000 per year rate. There are no other costs faced by Lorenzo in running this drone company.

Identify each of Lorenzo's costs in the following table as either an implicit cost or an explicit cost of selling drones.

	Implicit Cost	Explicit Cost
The wages that Lorenzo pays
The rental income Lorenzo could receive if he chose to rent out his showroom
The wholesale cost for the drones that Lorenzo pays the manufacturer
The salary Lorenzo could earn if he worked as a programmer

Complete the following table by determining Lorenzo's accounting and economic profit of his drone business.

	Profit
(Dollars)
Accounting Profit
Economic Profit