Calculate the accounting

profit or loss as well as the economic profit or loss in each of the

following situations:

a. A firm with total revenues of $150 million, explicit costs of

$90 million, and implicit costs of $40 million

b. A firm with total revenues of $125 million, explicit costs of

$100 million, and implicit costs of $30 million

c. A firm with total revenues of $100 million, explicit costs of

$90 million, and implicit costs of $20 million

d. A firm with total revenues of $250,000, explicit costs of

$275,000, and implicit costs of $50,000

(a) $60; $20 million

(b) $25; - $5 million

(c) $10; - $10 million

(d) - $25; - $75 million

Explanation:

(a)

Accounting Profit = Total revenues - Explicit cost

= $150 - $90

= $60 million

Economic Profit = Accounting Profit - Implicit cost

= $150 - $90 - $40

= $20 million

(b)

Accounting Profit = Total revenues - Explicit cost

= $125 - $100

= $25 million

Economic Profit = Accounting Profit - Implicit cost

= $125 - $100 - $30

= - $5 million (that's a negative $5 million)

(c)

Accounting Profit = Total revenues - Explicit cost

= $100 - $90

= $10 million

Economic Profit = Accounting Profit - Implicit cost

= $100 - $90 - $20

= - $10 million (negative $10 million)

(d)

Accounting Profit = Total revenues - Explicit cost

= $250 - $275

= - $25 million (negative $25 million)

Economic Profit = Accounting Profit - Implicit cost

= $250 - $275 - $50

= - $75 million (negative $75 million)