The firm illustrated above is

Question

Quizplus · Accepted Answer

Economic profit is the difference between total revenue and total economic cost (including both explicit and implicit costs). In the chart, total revenue is equal to $2,000,000 per month (the intersection of the price line and the quantity sold line). Economic cost is equal to the sum of explicit cost ($1,200,000 per month) and implicit cost ($200,000 per month for forgone rent), which equals $1,400,000 per month. Therefore, economic profit is equal to $2,000,000 - $1,400,000 = $600,000 per month. However, since the accounting profit is equal to $1,000,000 per month, this means that there is an implicit cost of $400,000 per month, which represents the economic loss incurred by the firm. Therefore, the correct answer is D.

The Firm Illustrated Above Is