Suppose a firm's total revenue is $1,000,000.The firm has incurred explicit costs of $750,000.There is also $50,000 of forgone wages by the owner,$10,000 of forgone interest by the owner,$3,000 worth of economic depreciation,and $20,000 worth of normal profit.What is the firm's economic profit?
A) $250,000
B) $200,000
C) $190,000
D) $167,000
E) $180,000

Question

Quizplus · Accepted Answer

The formula for economic profit is:
Total revenue - explicit costs - implicit costs
Total revenue = $1,000,000
Explicit costs = $750,000
Implicit costs = forgone wages + forgone interest + economic depreciation + normal profit
Implicit costs = $50,000 + $10,000 + $3,000 + $20,000 = $83,000

Economic profit = $1,000,000 - $750,000 - $83,000 = $167,000

Therefore, the best choice is D.

Suppose a Firm's Total Revenue Is $1,000,000