Question

Suppose that a business incurred implicit costs of $200,000 and explicit costs of $1 million in a specific year. If the firm sold 4,000 units of its output at $300 per unit, its accounting profits were:
a. $100,000 and its economic profits were zero.
b. $200,000 and its economic profits were zero.
c. $100,000 and its economic profits were $100,000.
d. zero and its economic loss was $200,000.

Answer 1

Answer:b

Explanation:

Given

Implicit cost=$ 200,000

Explicit cost=$ 1 million

4000 units

Output=$ 300 per unit

therefore revenue $=4000\times 300= 12\times 10^5$

as we need to compute accounting profit therefore we do not consider the implicit cost

accounting Profit=1.2-1=$ 0.2 million

and economic Profit =Revenue -explicit cost-Implicit cost

economic Profit=0.2-0.2=0

Thus option b is most appropriate