Bessie wants to calculate the accounting and economic profits of her cattle farm in Alberta.She pays $30 000 per year in overhead,$80 000 in wages,and $20 000 in insurance.She forgoes $30 000 per year that she could make as a teacher.If her total revenue equals $140 000,that means her accounting profit is _____ and her economic profit is _____.

Question

Quizplus · Accepted Answer

Accounting profit = total revenue - explicit costs
Accounting profit = $140,000 - ($30,000 + $80,000 + $20,000) = $10,000

Economic profit = total revenue - explicit costs - implicit costs
Implicit costs include opportunity costs, such as the $30,000 Bessie forgoes as a teacher. 
Economic profit = $140,000 - ($30,000 + $80,000 + $20,000) - $30,000 = -$20,000
Therefore, Bessie's accounting profit is $10,000 while her economic profit is -$20,000. Option A is the best choice as it accurately reflects Bessie's profit situation.

Bessie Wants to Calculate the Accounting and Economic Profits of Her