Suppose a firm incurred explicit costs of $900 and implicit costs of $200 during a day.If that day the firm sold 8 units at $300 per unit its accounting profits are:
A) $1,500 and its economic profits are $1,700
B) $1,500 and its economic profits are $1,300
C) $1,300 and its economic profits are $1,700
D) $1,300 and its economic profits are $1,300

Question

Quizplus · Accepted Answer

The accounting profit is calculated by subtracting explicit costs from total revenue
Accounting Profit = Total Revenue - Explicit Costs
Accounting Profit = 8*$300 - $900 = $2,100 - $900
Accounting Profit = $1,200

The economic profit is calculated by subtracting both explicit and implicit costs from total revenue
Economic Profit = Total Revenue - Explicit Costs - Implicit Costs
Economic Profit = 8*$300 - $900 - $200 = $2,100 - $1,100
Economic Profit = $1,000

Therefore, the accounting profit is $1,500 and the economic profit is $1,300. The correct choice is B.

Suppose a Firm Incurred Explicit Costs of $900 and Implicit