Question

Suppose that a business incurred explicit costs of $1 million and implicit cost of $200,000 in a specific year. If the firm sold 4,000 units of its output at $300 per unit, its accounting profits were:___________

Answer 1

B. $200,000 and its economic profits were zero.

Step-by-step explanation:

Given that

Total revenue = 4000 × 300 = 1200000

Explicit cost = 1000000

Implicit cost = 200000

Recall that

Accounting profit = total revenue - explicit cost

So,

Accounting profit = 1,200,000 - 1, 000,000

= $200,000

Again

Economic profit = Total revenue - ( explicit + implicit cost)

So,

Economic profits = 1,200,000 - ( 1,000,000 + 200,000)

= 1,200,000 - 1,200,000

= $0

So accounting profits of $200,000 and economic profit of $0.