Question

Jennifer owns a pig farm near​ Salina, Kansas. Last year she earned​ $39,000 in total revenue while incurring​ $38,000 in explicit costs. She could have earned​ $27,000 as a teacher in Salina. These are all her revenue and costs. Therefore Jennifer earned an

Answer 1

Answer:

Jennifer earned an accounting profit of  $1,000 and economic loss of $26,000

Explanation:

Total revenue for Jennifer is $39,000.  

Explicit costs incurred is $38,000.  

The implicit cost or opportunity cost involved is $27,000.

Accounting profit takes into account explicit costs only. It does not include implicit costs involved in the production process.  

Jennifer has earned an accounting profit of

= Total revenue - Explicit costs

= $39,000 - $38,000

= $1,000

Economic profit takes into account the explicit cost as well as implicit cost.  

The economic profit earned

= Total revenue - Total costs

= $39,000 - ($38,000 + $27,000)

= - $26,000