Question

The monetary costs and opportunity costs a firm pays and the revenue a firm receives. Economic profit = total revenue - (explicit costs + implicit costs).

Answer 1

Economic profit is calculated by subtracting both explicit and implicit costs from total revenues. If a firm has total revenues of $200,000 with explicit costs of $85,000 and implicit costs of $125,000, the economic profit would be a loss of $10,000 per year, showing the firm is not economically profitable.

Step-by-step explanation:

The concept being discussed is economic profit, which is crucial for understanding the financial health of a business. To calculate economic profit, one must deduct both explicit and implicit costs from the total revenues. Explicit costs are direct payments made for the operation of the business, such as wages and rents, while implicit costs include the opportunity costs of the resources owned by the firm and used in the business. For example, if a firm's total revenues are $200,000, and the explicit costs amount to $85,000, and the implicit costs total $125,000, the economic profit would be:

Economic profit = $200,000 - $85,000 - $125,000 = -$10,000 per year

This result indicates a loss, evidencing that the firm hasn't covered all of its opportunity costs and is, therefore, not economically profitable.