Bessie wants to calculate the accounting and economic profits of her cattle farm in Nebraska.She pays $30,000 per year in overhead,$80,000 in wages,and $20,000 in insurance.She forgoes $30,000 per year that she could make as a teacher.If her total revenue equals $140,000,that means her accounting profit is _____ and her economic profit is _____.

Question

Quizplus · Accepted Answer

Accounting profit is calculated by subtracting explicit costs from total revenue. In this case, explicit costs include overhead ($30,000), wages ($80,000), and insurance ($20,000), totaling $130,000. Subtracting this from the total revenue ($140,000) gives an accounting profit of $10,000. Economic profit subtracts both explicit and implicit costs (the forgone income of $30,000) from total revenue. Therefore, the economic profit is $10,000 (accounting profit) minus $30,000 (implicit cost), resulting in -$20,000.

Bessie Wants to Calculate the Accounting and Economic Profits of Her