Suppose that a business incurred implicit costs of $500,000 and explicit costs of $5 million in a specific year. If the firm sold 100,000 units of its output at $50 per unit, its accounting

Question

Quizplus · Accepted Answer

Accounting profits = Total revenue - Explicit costs
Accounting profits = (100,000 units x $50 per unit) - $5 million = $0

Economic profits = Total revenue - Explicit costs - Implicit costs
Economic profits = (100,000 units x $50 per unit) - $5 million - $500,000 = -$500,000

Therefore, the firm incurred economic losses of $500,000. Choice D is correct.

Suppose That a Business Incurred Implicit Costs of $500,000 and Explicit