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7 June, 02:46

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 $500,000 and its economic profits were $1 million. d. profits were zero and its economic losses were $500,000.

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  1. 7 June, 03:12
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    d. profits were zero and its economic losses were $500,000.

    Explanation:

    Accounting profit = Revenue - explicit cost

    Revenue = price * quantity sold

    $50 * 100,000 = $5,000,000

    Accounting profit = $5,000,000 - $5,000,000 = $0

    Economic profit = Accounting profit - Explicit cost

    Explicit cost is the opportunity cost of this production activity.

    Economic profit = $0 - $500,000 = $-500,000

    This is a loss
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