Suppose that a firm produces 200,000 units a year and sells them all for $10 each. The explicit costs of production are $1,500,000 and the implicit costs of production are $300,000. 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 200,000 units * $10 = $2,000,000. Subtracting the explicit costs of $1,500,000 gives an accounting profit of $500,000. Economic profit further subtracts implicit costs from the accounting profit. So, $500,000 - $300,000 = $200,000 economic profit.

Suppose That a Firm Produces 200,000 Units a Year and Sells