Final answer:
The firm's accounting profit is calculated by subtracting the total explicit costs from the total revenues. In this case, after subtracting $600,000 for labor, $150,000 for capital, and $200,000 for materials from the $1 million sales revenue, the firm's accounting profit is $50,000.
Step-by-step explanation:
Calculating Accounting Profit
To calculate the firm's accounting profit, we start with the sales revenue and subtract all explicit costs such as labor, capital, and materials. In the provided scenario, the firm's sales revenue was $1 million. The costs were $600,000 for labor, $150,000 for capital, and $200,000 for materials. The formula for accounting profit is Accounting Profit = Total Revenues - Total Explicit Costs.
Now, by applying the values to the formula:
- Sales Revenue: $1,000,000
- Labor Costs: $600,000
- Capital Costs: $150,000
- Materials Costs: $200,000
So, Accounting Profit = $1,000,000 - ($600,000 + $150,000 + $200,000) = $1,000,000 - $950,000 = $50,000.
The firm's accounting profit for the last year was $50,000.