Suppose that a firm produces 200,000 units a year and sells them all for Rs.10 each. The explicit costs of production are Rs.1,500,000 and the implicit costs of production are Rs. 300,000. The firm has an accounting profit of:
A)rs. 500,000 and an economic profit of rs. 200,000.
B)rs. 400,000 and an economic profit of rs. 200,000.
C)rs. 300,000 and an economic profit of rs. 400,000.
D)rs. 200,000 and an economic profit of rs. 500,000.

Question

Quizplus · Accepted Answer

Accounting profit is calculated as total revenue minus explicit costs. Here, total revenue is 200,000 units * Rs.10 = Rs.2,000,000. Subtracting the explicit costs of Rs.1,500,000 gives an accounting profit of Rs.500,000. Economic profit subtracts both explicit and implicit costs from total revenue, so Rs.2,000,000 - Rs.1,500,000 (explicit costs) - Rs.300,000 (implicit costs) = Rs.200,000.

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