Suppose a firm's total revenue is $1,000,000. The firm has incurred explicit costs of $750,000. There is also $50,000 of forgone wages by the owner, $10,000 of forgone interest by the owner, $3,000 worth of economic depreciation, and $20,000 worth of normal profit. What is the firm's economic profit?
A) $190,000
B) $180,000
C) $250,000
D) $200,000
E) $167,000

Question

Quizplus · Accepted Answer

Economic profit is calculated by subtracting both explicit and implicit costs from total revenue. Here, explicit costs are $750,000, and implicit costs include forgone wages ($50,000), forgone interest ($10,000), economic depreciation ($3,000), and normal profit ($20,000), totaling $83,000. Thus, economic profit = $1,000,000 - ($750,000 + $83,000) = $167,000.

Suppose a Firm's Total Revenue Is $1,000,000