Question

Consider the following information about a business Diane opened last year: price = $15, quantity sold = 25,000; implicit cost = $155,000; explicit cost = $260,000. What was Diane's economic profit? What was Diane’s accounting profit? Show your work!!

Answer 1

Accounting Profit = $115.000 and Economic Profit= -40.000

Step-by-step explanation:

Accounting profit is the monetary costs a firm pays out and the revenue a firm receives.

Accounting Profit = Total Revenues - Explicit Costs

Accounting Profit = ($15 x 25000) -$260,000=375.000-$260,000

Accounting Profit = $115.000

Economic profit is the difference between the total revenue received by a business and the total explicit and implicit costs for a firm.

Economic Profit = Accounting Profit - Implicit Cost

Economic Profit= $115.000 -$155,000

Economic Profit= -40.000

Answer 2

Economic profit = $-40,000

Accounting profit = $115,000

Step-by-step explanation:

Accounting profit is total revenue less total cost or explicit cost.

Accounting profit = Total revenue - Total cost

Total revenue = 25,000 x $15 = $375,000

Total cost = $260,000

Accounting profit = $375,000 - $260,000 = $115,000

Economic profit is accounting profit less implicit cost or opportunity cost

Economic profit = Accounting profit -Implicit cost

= $115,000 - $155,000 = $-40,000

I hope my answer helps you