Final answer:
Net income in a merchandise business is the profit calculated as Total Revenue minus Total Cost. Total Revenue is obtained by multiplying the product's price by the quantity sold. Economic profit also considers explicit and implicit costs.
Step-by-step explanation:
In a merchandise business, the equation that represents net income is derived from the fundamental profit equation, which is Profit = Total Revenue - Total Cost. To calculate total revenue, you multiply the price at which goods are sold by the quantity sold, represented by the formula Total Revenue = Price x Quantity. Net income is similar to economic profit, but it typically refers to the profit after taxes and is reported on financial statements. Economic profit, on the other hand, includes both explicit and implicit costs, with the formula being Economic Profit = Total Revenues - Explicit Costs - Implicit Costs. As per the example provided, if a company had total revenues of $200,000, explicit costs of $85,000, and implicit costs of $125,000, the economic profit would be -$10,000 per year, indicating a loss.