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2 July, 01:26

Calculate the accounting

profit or loss as well as the economic profit or loss in each of the

following situations:

a. A firm with total revenues of $150 million, explicit costs of

$90 million, and implicit costs of $40 million

b. A firm with total revenues of $125 million, explicit costs of

$100 million, and implicit costs of $30 million

c. A firm with total revenues of $100 million, explicit costs of

$90 million, and implicit costs of $20 million

d. A firm with total revenues of $250,000, explicit costs of

$275,000, and implicit costs of $50,000

+4
Answers (1)
  1. 2 July, 01:40
    0
    (a) $60; $20 million

    (b) $25; - $5 million

    (c) $10; - $10 million

    (d) - $25; - $75 million

    Explanation:

    (a)

    Accounting Profit = Total revenues - Explicit cost

    = $150 - $90

    = $60 million

    Economic Profit = Accounting Profit - Implicit cost

    = $150 - $90 - $40

    = $20 million

    (b)

    Accounting Profit = Total revenues - Explicit cost

    = $125 - $100

    = $25 million

    Economic Profit = Accounting Profit - Implicit cost

    = $125 - $100 - $30

    = - $5 million (that's a negative $5 million)

    (c)

    Accounting Profit = Total revenues - Explicit cost

    = $100 - $90

    = $10 million

    Economic Profit = Accounting Profit - Implicit cost

    = $100 - $90 - $20

    = - $10 million (negative $10 million)

    (d)

    Accounting Profit = Total revenues - Explicit cost

    = $250 - $275

    = - $25 million (negative $25 million)

    Economic Profit = Accounting Profit - Implicit cost

    = $250 - $275 - $50

    = - $75 million (negative $75 million)
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