Answer:
A.
Explicit costs = $515000
B.
Implicit cost = $170000
C.
Accounting Profit = $75000
D.
Economic Profit = - $95000
E.
A rational producer will base his/her decision on the economic profit of a decision and consider the opportunity costs. Thus, as operating the factory has a negative economic profit (or economic loss) of $95000, as a rational producer, Teresa should stop producing shoes.
Explanation:
A.
Explicit costs are the costs that are directly involved and incurred as a result and results in an outflow of cash from the entity.
Explicit costs = 300000 + 200000 + 15000
Explicit costs = $515000
B.
Implicit costs are the costs that does not require an outflow of cash from the entity. These are the opportunity costs of an entity's decision in terms of what the entity has to give up.
implicit cost = 50000 + 100000 + 20000
Implicit cost = $170000
C.
The accounting profit is the profit calculated by deducting the explicit costs of the business from the total revenue. This is normally the profit which is calculated and recorded by all the businesses under GAAP and IFRS.
Accounting Profit = Total Revenue - Explicit costs
Accounting profit = 590000 - 515000
Accounting profit = $75000
D.
Economic Profit is calculated by deducting all the costs, both explicit and implicit, from the total revenue.
Economic Profit = Total Revenue - Explicit costs - Implicit costs
Economic Profit = 590000 - 515000 - 170000
Economic Profit = - $95000
E.
A rational producer will base his/her decision on the economic profit of a decision and consider the opportunity costs. Thus, as operating the factory has a negative economic profit (or economic loss) of $95000, as a rational producer, Teresa should stop producing shoes.
