Question

Suppose your donut shop earns $25,000 in total revenues per month with explicit costs of $15,000 and opportunity costs of $8,000. Your accounting profit is

A. $48,000
B. $2,000
C. zero.
D. $10.000

Answer 1

The accounting profit of the donut shop is calculated by subtracting explicit costs from total revenues, equating to $10,000. This figure does not consider opportunity costs, which are relevant for calculating economic profit.

Step-by-step explanation:

To calculate the accounting profit of your donut shop, you subtract the explicit costs from the total revenues. The formula to find this is: accounting profit = total revenues - explicit costs. Therefore, accounting profit = $25,000 - $15,000 = $10,000. The answer doesn't take into consideration the opportunity costs, as these are used to calculate economic profit, not accounting profit.

To find the economic profit, you would also subtract the opportunity costs (also known as implicit costs) from the accounting profit. The formula for economic profit is: economic profit = accounting profit - implicit costs. This is not what is being asked for in the question, however, it's important to understand the distinction between the two measures of profit.