Suppose that a firm produces 275,000 units a year and sells them all for $8 each. The explicit costs of production are $1,800,000 and the implicit costs of production are $400,000. The firm earns an accounting profit of

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Accounting profit is calculated as total revenue minus explicit costs. Here, total revenue is 275,000 units * $8/unit = $2,200,000. Subtracting the explicit costs of $1,800,000 gives an accounting profit of $400,000. Economic profit subtracts both explicit and implicit costs from total revenue. So, $2,200,000 - $1,800,000 (explicit costs) - $400,000 (implicit costs) = $0 economic profit.

Suppose That a Firm Produces 275,000 Units a Year and Sells