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.

Question

Brandi

Business

19 August, 04:37

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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Donna Mack · Answer 1

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