Suppose that a firm produces 200,000 units a year and sells them all for $10 each. The explicit costs of production are $1,500,000 and the implicit costs of production are $300,000. The firm has an accounting profit of:

a. $500,000 and an economic profit of $200,000

b. $400,000 and an economic profit of $200,000

c. $300,000 and an economic profit of $400,000

d. $200,000 and an economic profit of $500,000

correct option is a. $500,000 and an economic profit of $200,000

Explanation:

given data

firm produces = 200,000 units

sells = $10 each

explicit costs = $1,500,000

implicit costs = $300,000

to find out

firm has an accounting profit

solution

we first get here Revenues that is express as

Revenues = firm produces * sells ... 1

Revenues = 200000 * 10

Revenues = $2000000

and

Accounting profit will be here

Accounting profit = revenue - explicit cost ... 2

Accounting profit = 2000000 - 1500000

Accounting profit = $500000

so

Economic profit = accounting profit - implicit cost ... 3

Economic profit = 500000 - 300000

Economic profit = $200000

so here

correct option is a. $500,000 and an economic profit of $200,000