Mr. Blowfish opened a seafood store in December. He borrowed $60,000 from a bank at an annual interest rate of 8 percent. He used the funds he borrowed to purchase $60,000 of capital equipment. Over the year, he rented a building for $50,000 a year

During the first year of operation, Blowfish paid $45,000 to his employees, $20,000 for utilities, and $25,000 for raw fish he bought from other firms. In December of the next year, the market value of his capital was $50,000. Blowfish's best alternative to running the seafood store is to work for a grocery store as a sales clerk for $20,000 a year. a) What is the economic depreciation of Blowfish's capital? b) What are Blowfish's total opportunity costs? c) What is Blowfish's economic profit?

a) Economic depreciation is the change in the market value of capital over a given period. The market value of Blowfish's capital was $60,000 at the beginning of the period and $50,000 at the end. So the economic depreciation is $60,000 - $50,000 = $10,000.
b) Blowfish's costs are: the economic depreciation, $10,000; the forgone income, which is the $20,000 he could have earned working for a grocery store; the wages paid, $45,000; rent, $50,000; utilities, $20,000; interest paid, $4,800; and raw fish bought, $25,000. So Blowfish's total cost is $174,800.
c) Economic profit equals total revenue minus total opportunity costs. Blowfish's total revenue is $165,000 and his total opportunity cost is $174,800. So his economic profit is $165,000 - $174,800 = -$9,800, which means that Blowfish incurred an economic loss of $9,800.