Final answer:
The total relevant costs are the combined explicit and implicit costs involved in a decision. Using examples, if total revenues are $200,000, explicit costs are $85,000, and implicit costs are $125,000, the economic loss is $10,000. Furthermore, a sales case with a loss of $5 also illustrates the concept of total costs.
Step-by-step explanation:
The total relevant costs in this decision add up to the sum of all explicit and implicit costs incurred when a decision is made. For instance, if we take an example where the total revenues equal $200,000, and explicit costs are $85,000, while implicit costs are $125,000, we can calculate the economic profit, which is equal to total revenues minus total explicit and implicit costs, thus $200,000 - $85,000 - $125,000, resulting in an economic loss of $10,000 annually.
When assessing the profitability of a firm, we must consider production levels and unit pricing. For example, if a firm sells five units of a product at $25/unit, the total revenue would be $125. However, if the total costs associated with producing these five units are $130, this means the firm incurs a loss of $5 at this production level, which is an important consideration when calculating total relevant costs.