Calculate the accounting profit or loss as well as the economic profit or loss i
ID: 1186222 • Letter: C
Question
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
Explanation / Answer
a. A firm with total revenues of $150 million, explicit cost of $90 million, and implicit costs of $40 million
Accounting Profit = $150 - $90 = $60 million
Economic Profit = $150 - $90 - $40 = $20 million
b. A firm with total revenues of $125 million, explicit cost of $100 million, and implicit costs of $30 million
Accounting Profit = $125 - $100 = $25 million
Economic Profit = $125 - $100 - $30 = -$5 million (that's a negative $5 million)
c. A firm with total revenues of $100 million, explicit cost of $90 million, and implicit costs of $20 million
Accounting Profit = $100 - $90 = $10 million
Economic Profit = $100 - $90 - $20 = -$10 million (negative $10 million)
d. A firm with total revenues of $250,000, explicit cost of $275,000, and implicit costs of $50,000
Accounting Profit = $250 - $275 = -$25 million (negative $25 million)
Economic Profit = $250 - $275 - $50 = -$75 million (negative $75 million)