Asked by Amber Harris on May 05, 2024
Verified
A firm with explicit costs of $3,000,000,no implicit costs,and total revenue of $3,000,000 would have
A) zero economic profit.
B) zero accounting profit.
C) accounting profits equal to economic profits,in this case both zero.
D) All of the choices are true of this firm.
Explicit Costs
These are direct monetary payments a firm makes to purchase inputs for its production, such as wages, rent, and materials.
Implicit Costs
The opportunity costs of using resources already owned by the firm for production, as opposed to external spending.
Economic Profit
The difference between revenue generated from output and the opportunity costs of inputs used, considering both explicit and implicit costs.
- Distinguish between the nuanced distinctions of explicit and implicit costs and their significance in calculating economic profit.
- Comprehend the distinction between economic profit and accounting profit.
Verified Answer
MZ
Mauricio ZarateMay 09, 2024
Final Answer :
D
Explanation :
Since the firm has explicit costs equal to its total revenue and no implicit costs, both its accounting profit and economic profit are zero. Accounting profit is calculated as total revenue minus explicit costs, and economic profit further subtracts implicit costs. With no implicit costs, both profits are the same and equal to zero.
Learning Objectives
- Distinguish between the nuanced distinctions of explicit and implicit costs and their significance in calculating economic profit.
- Comprehend the distinction between economic profit and accounting profit.