Question

Linda sells 100 bottles of homemade ketchup for $10 each. The cost of the ingredients, the bottles, and the labels was $700. In addition, it took her 20 hours to make the ketchup and to do so she took time off from a job that paid her $20 per hour. Linda's accounting profit is _______ and her economic profit is _________ Instructions:
a. $700; $400
b. $300; $100
c. $300; negative $100
d. $1,000; negative $1,100

Answer 1

Answer:

c. $300; negative $100

Explanation:

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

Accounting profit = Total Revenue - Total cost

Total revenue = price x quantity

100 × $10 = $1,000

Total cost = $700

Accounting profit = $1000 - $700 = $300

Economic profit is accounting profit less implicit cost or opportunity cost.

Opportunity cost is the cost of the next best option forgone when one alternative is chosen over other alternatives.

Implicit cost = $20 × 20 = $400

Economic profit = $300 - $400 = $-100

I hope my answer helps you