Suppose that a firm earned $500,000 in total revenue.At the same time,it incurred labor costs of $200,000; economic depreciation of $50,000; normal profit of $75,000; interest paid to the bank of $25,000; and used other factors of production that cost $100,000.The economic profit earned by the firm equals
A) $275,000.
B) $175,000.
C) $50,000.
D) $200,000.
E) $500,000.

Question

Quizplus · Accepted Answer

Economic profit is calculated by subtracting all costs, including opportunity costs (like normal profit), from total revenue. Here, total costs include labor costs ($200,000), economic depreciation ($50,000), normal profit ($75,000), interest ($25,000), and other factors of production ($100,000), summing up to $450,000. Subtracting this from the total revenue ($500,000) gives an economic profit of $50,000.

Suppose That a Firm Earned $500,000 in Total Revenue