Answer and Explanation:
The computations are shown below
a. For Annual explicit cost
= Wages and salaries + material cost + new equipment cost + rental property + interest cost in capital
= $200,000 + $75,000 + $30,000 + $20,000 + $35,000
= $360,000
We considered all the cost which are incurred with respect to material, wages and salaries, equipment, etc
b. For Annual implicit cost
= Income received
= $90,000
= $90,000
It includes the opportunity cost which could be earned by the individual or company
c. For annual economic cost
= Explicit cost + Implicit cost
= $360,000 + $90,000
= $450,000
It is a mix of both explicit cost and the implicit cost
d. For accounting profit
As we know that
Accounting profit = Total revenues - explicit costs + depreciation.
= $360,000 - $360,000
= $0
e. For economic Profit it is
= Total Revenues – Explicit Costs – Implicit Costs
= $360,000 - $360,000 - $90,000
= -$90,000
