SOLUTIONS & DISCUSSION
PROBLEMS & EXERCISES
UNIT TWO (FOR EXAM TWO)
Unit Two: Assignment 2: Problem 4 from page 587
Accounting Profit = Total Revenue - Explicit Costs
Economic Profit = Accounting Profit - Implicit Costs
Total Revenue = $260,000
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EXPLICIT COSTS |
IMPLICIT COSTS |
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Labor |
40,000 |
Opportunity Cost of Labor |
125,000 |
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Rent |
10,000 |
Opportunity Cost of Capital |
4,000 |
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Ingredients |
35,000 |
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Utilities |
5,000 |
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TOTAL |
90,000 |
TOTAL |
129,000 |
Therefore, Accounting Profit = $260,000 minus $90,000 or $170,000.
Economic Profit = $170,000 minus $129,000 or $41,000.
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