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Answer to Question #110902 in Microeconomics for Someswari A/P S. T. Rajan

Question #110902
Suppose that a firm produces 200,000 units a year and sells them all for RM10 each.
The explicit costs of production are RM1, 500,000 and the implicit costs of production
are RM300, 000. Calculate the firmâ€™s accounting profit and economic profit
1
2020-04-20T10:25:34-0400

The accounting profit of the firm is estimated as follows:

Accounting profit=Total revenue-Explicit cost.

The total revenue is the product of the price per unit and the quantity sold. (Price* Quantity)

Total revenue=200,000*RM10

Total revenue=RM2,000,000

Therefore, substituting the figures given in the above formula we get:

Accounting profit=RM2,000,000-RM1, 500,000

Accounting profit=RM500,000.

On the other hand, the economic profit of the firm is computed as follow:

Economic profit=Total revenue-Explicit cost-Implicit cost

Economic profit=RM2,000,000-RM1, 500,000-RM300, 000

Economic profit=RM200,000.

Therefore, the accounting profit is RM500,000 and an economic profit of RM200,000.

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