Final answer:
The firm's accounting profit, which is sales revenue minus the total explicit costs, is calculated to be $50,000. This is obtained by subtracting the sum of labor, capital, and materials expenses from the sales revenue of $1 million.
Step-by-step explanation:
The student's question centers around calculating accounting profit for a firm given their sales revenue and expenses for labor, capital, and materials. To compute the accounting profit, we subtract the total expenses from the sales revenue. From the provided information, the firm had sales revenue of $1 million and expenses that included $600,000 for labor, $150,000 for capital, and $200,000 for materials.
Adding up all the expenses ($600,000 + $150,000 + $200,000), we get a total expense of $950,000. Subtracting this from the sales revenue of $1 million, the firm's accounting profit is calculated as follows:
- Sales Revenue: $1,000,000
- Total Expenses: $950,000
- Accounting Profit: $1,000,000 - $950,000 = $50,000
Therefore, the firm's accounting profit last year was $50,000. This is an important measure as it reflects the profitability of the company after accounting for all explicit costs but before considering any implicit costs like opportunity costs.