A firm has $200 million in total revenue and explicit costs of $190 million. Suppose its owners have invested $100 million in the company at an opportunity cost of 10 percent interest rate per year. The firm's economic profit is:
A) $400 million.
B) $100 million.
C) $80 million.
D) zero.

Question

Quizplus · Accepted Answer

Economic profit is calculated as total revenue minus total costs (explicit and implicit). The implicit cost here is the opportunity cost of the owners' investment, which is $10 million (10% of $100 million). Therefore, economic profit = $200 million - $190 million - $10 million = $0.

A Firm Has $200 Million in Total Revenue and Explicit