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 ____.

Question

Quizplus · Accepted Answer

Accounting profit = Revenues - Explicit Costs
Accounting profit = $120,000 - $70,000
Accounting profit = $50,000

To calculate economic profit, we need to take into account the opportunity cost. Opportunity cost is the value of the best alternative that is forgone. In this case, the best alternative is the $80,000 that he could have earned working for a computer company.

Economic profit = Revenues - Explicit Costs - Implicit Costs
Implicit Costs = Opportunity Cost = $80,000

Economic profit = $120,000 - $70,000 - $80,000
Economic profit = -$30,000

Thus, the accounting profit is $50,000 and the economic profit is -$30,000. Choice A is the best answer.

Assume Brad Worked as a Contractor for a Year and Had