Questions: Pam runs a shoeshine stand at the airport. Pam has no skills, no job experience, and no alternative employment. Entrepreneurs in the shoeshine stand business earn 11,000 a year. Pam pays the rent of 1,000 a year, and her total revenue is 12,000 a year. She borrowed 800 at 20 percent a year to buy equipment. At the end of one year, Pam was offered 500 for her business and all its equipment. What are Pam's explicit costs, implicit costs, and economic profit?

To determine Pam's explicit costs, implicit costs, and economic profit, we need to analyze the information provided:

1. Explicit Costs: These are the direct, out-of-pocket expenses that Pam incurs in running her shoeshine stand. They include:

   • Rent: $1,000 per year
   • Interest on borrowed money: Pam borrowed $800 at 20% interest, so the interest cost is $800 * 0.20 = $160 per year

   Total explicit costs = Rent + Interest = $1,000 + $160 = $1,160

2. Implicit Costs: These are the opportunity costs of using resources that Pam owns. In this case, the implicit cost is the foregone income that Pam could have earned if she had worked elsewhere. Entrepreneurs in the shoeshine stand business earn $11,000 a year, which represents the opportunity cost of Pam's time and effort.

   Implicit costs = $11,000

3. Economic Profit: This is calculated by subtracting both explicit and implicit costs from the total revenue. Economic profit is a measure of profitability that considers both the direct costs and the opportunity costs.

   Total Revenue = $12,000 Total Costs (Explicit + Implicit) = $1,160 + $11,000 = $12,160

   Economic Profit = Total Revenue - Total Costs = $12,000 - $12,160 = -$160

In summary:

• Pam's explicit costs are $1,160.
• Pam's implicit costs are $11,000.
• Pam's economic profit is -$160, indicating a loss when considering both explicit and implicit costs.