Susan Lambert owns and operates her own landscaping firm. She is a 34-year-old with a college degree, and she has been quite satisfied with her business. Susan's business operates in a warehouse owned by her parents. She currently has $400,000 of her own money invested in the business. Susan draws an annual salary of $50,000. Her parents have been letting her use the building rent-free while she gets her business started. They could earn $30.000 if they rented it to someone else. a good year, her business had total revenues of $475,000; however, in a bad year her revenues dropped to $400,000. She gave her accountant various receipts for payments for plants and materials ($215,000), labor ($45,000), utilities ($33,000), taxes and insurance ($22,000), and her draw for salary ($50,000). Starting with her accounting profit, Susan must now consider the appropriate implicit costs involved in her decision to operate her business. This requires determining what alternative uses or opportunity costs there are for Susan's time, the cost of the building provided by her parents, and her investment in the business. One essential resource that she contributes to the firm is her own time and talent. Susan figures that she could sell her business and go to work for someone else for a salary of $65,000 annually, given her experience and contacts. This opportunity cost takes into account Susan's time and management abilities. Of course, some entrepreneurs place a non-monetary value on being their own boss. Second, eventually she will have to pay the rental cost of the building. Either her parents will sell it to someone else (who will expect $30,000 in rent) or she will inherit the property and be responsible for expenses, or she could earn $30,000 by renting it to someone else). Finally, Susan must consider the opportunity costs of her own investment of $400.000 in the business. What are some alternatives uses for this investment? Perhaps she could put it into a mutual fund account earning an average of 11 percent each year or buy government bonds at 3 percent.

For both good year and bad year, calculate:

Susan's accounting (explicit) costs: Susan's accounting profits: Susan's implicit costs (other than opportunity costs):

Susan's opportunity costs:

Susan's economic profits: