Question

Suppose that a firm produces 200,000 units a year and sells them all for $10 each. The explicit costs of production are $1,500,000 and the implicit costs of production are $300,000. The firm has an accounting profit of:

Answer 1

Answer:

$500,000

Explanation: because accounting profit is equal to total revenue minus accounting cost and here total revenue earned is $2,000,000 and accounting cost(explicit cost) so accounting profit is $5000000  

Answer 2

Concept:

There are two types of profits- accounting profits and economic profits. In accounting profits, only explicit cost is taken into consideration. But in economic profit, both explicit and implicit cost is taken into consideration.

Given:

Number of units produced- 200,000

Selling price- $10 per unit

Explicit cost- $1500000

Implicit cost- $300,000

To find:

The accounting profit of the firm

Solution:

In simple terms,

Profit = Revenue - Cost

But,

Accounting profit= Revenue- Explicit costs

So,

accounting profit = 20,00,000 - 1500,000

=Rs 500,000

Therefore, the required answer is 500,000.

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