A firm has explicit costs of $110,000 and total revenue of $120,000. Which of the following is true about the firm?
A) The firm might be making an economic profit but we need more information about implicit costs to know for sure.
B) The firm is incurring an economic loss if implicit costs are $10,000.
C) The firm is definitely making an economic profit because it must be minimising its opportunity cost.
D) The firm is making a normal profit if implicit costs are $0.
E) The firm may be making an economic profit but only if implicit costs are negative.

Question

Quizplus · Accepted Answer

The firm might be making an economic profit but we need more information about implicit costs to know for sure. Economic profit is calculated as total revenue minus total costs (explicit plus implicit costs). Without knowing the implicit costs, we cannot determine the economic profit.

A Firm Has Explicit Costs of $110,000 and Total Revenue