Question

Suppose that a small business sells 975 units of goods per month at $26 per unit. The unit cost of producing 975 units of goods is $15. The business has implicit costs of $4,500. The economic profit of this business equals

Answer 1

The economic profit for the business is calculated by subtracting explicit and implicit costs from the total revenues ($25,350 - $14,625 - $4,500), resulting in an economic profit of $6,225.

Step-by-step explanation:

To calculate the economic profit for the business, we must consider total revenues, explicit costs (unit costs of production), and implicit costs. The business sells 975 units at $26 per unit. Therefore, the total revenues are 975 units × $26/unit = $25,350. The explicit costs are the unit costs of production for 975 units at $15 per unit, which totals to 975 units × $15/unit = $14,625.

The implicit costs are given as $4,500. To determine economic profit, we subtract both the explicit and implicit costs from the total revenues.

Economic Profit = Total Revenues - Explicit Costs - Implicit Costs = $25,350 - $14,625 - $4,500 = $6,225.

Thus, the economic profit for the business is $6,225.