Final answer:
A firm with a negative gross profit will either have a negative net income or a negative operating profit, not a positive one. For the self-check question, the firm's accounting profit is $50,000, calculated by subtracting the total expenses of $950,000 from the sales revenue of $1,000,000.
Step-by-step explanation:
A firm that reports a negative gross profit cannot have a positive net income or a positive operating profit because gross profit is calculated by subtracting the cost of goods sold (COGS) from sales revenue. If a firm has a negative gross profit, it means that its COGS is higher than its sales revenue. From that point onward, any additional expenses such as operating costs, taxes, and interests will only increase the loss. Therefore, a firm reporting negative gross profit will generally have either a negative net income or a negative operating profit, and it should be further analyzed to determine which scenario applies.
For the self-check question provided: The firm's accounting profit can be calculated by subtracting the total expenses from the sales revenue. In this case:
- Sales revenue: $1,000,000
- Total expenses (labor + capital + materials): $600,000 + $150,000 + $200,000 = $950,000
- Accounting profit: $1,000,000 - $950,000 = $50,000