Asked by Chris Milano on Jul 22, 2024
Verified
Suppose that a business incurred implicit costs of $200,000 and explicit costs of $1 million in a specific year.If the firm sold 4,000 units of its output at $300 per unit,its accounting profits were:
A) $100,000 and its economic profits were zero.
B) $200,000 and its economic profits were zero.
C) $100,000 and its economic profits were $100,000.
D) zero and its economic loss was $200,000.
Implicit Costs
The opportunity costs of resources that are owned by the firm and used in production, not involving direct payment of money but affecting the firm's profitability.
Explicit Costs
Direct payments made to others in the course of running a business, such as wages, rent, and materials.
Accounting Profits
The net earnings of a company as calculated by subtracting total expenses from gross revenue, according to accepted accounting principles.
- Conduct the calculation and differentiation between accounting profit and economic profit.
Verified Answer
SA
salem abo loghodJul 27, 2024
Final Answer :
B
Explanation :
Accounting profit is calculated by subtracting explicit costs from revenue, which is $200,000. Economic profit takes into account both explicit and implicit costs, which is $0 in this case ($1 million explicit costs + $200,000 implicit costs = $1.2 million total costs, equaling revenue of $1.2 million). Therefore, the business has zero economic profit.
Learning Objectives
- Conduct the calculation and differentiation between accounting profit and economic profit.