Assume Brad worked as a contractor for a year and had revenues of $120,000 and explicit cost of $70,000.If he could have been paid $80,000 working for a computer company,his accounting profit as a contractor was ____ and his economic profit was ____.
A) $50,000; -$30,000
B) $10,000; $50,000
C) $40,000; $50,000
D) $50,000; $40,000

Question

Quizplus · Accepted Answer

Accounting profit is calculated by subtracting explicit costs from revenues:
$120,000 - $70,000 = $50,000
Economic profit is calculated by subtracting both explicit and implicit costs (what Brad could have earned as an alternative) from revenues:
$120,000 - $70,000 - $80,000 = -$30,000
Since Brad could have earned more working for the computer company, his economic profit is negative. Option A is the only choice that has the correct accounting and economic profit values.

Assume Brad Worked as a Contractor for a Year and Had