Answer to Question #232164 in Microeconomics for Joka

Question

A business incurred implicit costs of R500 000 and explicit costs of R5 million in a specific year. If the firm sold 100 000 units of its output at R50 per unit, what is its accounting and economic profit/loss?

Answer 1

Implicit cost = 500,000

Explicit cost = 5,000,000

Sales in units - 100,000 units

Sales per unit = 50

Total sales revenue = 50 *100,000

Total sales revenue = 5,000,000

Accounting profit = sales revenue - explicit cost

Accounting profit = 5,000,000 - 5,000,000

Accounting profit = 0

Economic loss = 500,000 (Implicit cost)