Final answer:
The final price equals the list price minus incentives and allowances. Calculating economic profit includes subtracting both explicit and implicit costs from total revenues, which may result in a positive or negative value.
Step-by-step explanation:
To calculate the final price or economic profit, one must consider all relevant costs associated with the production and sale of goods and services. This includes both explicit costs, which are direct, out-of-pocket expenses like raw materials and labor, and implicit costs, which are the opportunity costs of using resources that could have been employed elsewhere.
The equation for calculating the true economic profit is Economic profit = total revenues - explicit costs - implicit costs. For example, if a company 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. When determining the final price that consumers see, incentives and allowances such as rebates and discounts are often deducted from the list price.