question archive Suppose that a business incurred implicit costs of $500,000 and explicit costs of $5 million in a specific year
Suppose that a business incurred implicit costs of $500,000 and explicit costs of $5 million in a specific year
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Suppose that a business incurred implicit costs of $500,000 and explicit costs of $5 million in a specific year. If the firm sold 100,000 units of its output at $50 per unit, its accounting:
A. profits were $100,000 and its economic profits were zero.
B. losses were $500,000 and its economic losses were zero.
C.profits were zero and its economic losses were $500,000.
D. profits were $500,000 and its economic profits were $1 million
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Answer:
Implicit cost = $ 500,000
Explicit cost = $ 5 million = $ 5,000,000
Output = 100,000
Price = $ 50
Accounting profit = Revenue - Explicit cost
Accounting profit = 50 × 100,000 - 5,000,000 = $ 0
Economic profit = Accounting profit - Implicit cost
Economic profit = 0 - 500,000
Economic profit = - $ 500,000
Option c.
