Chapter 52, Problem 5MCQ

To determine

Accounting profit and economic profit if someone is selling T-shirts at school's football games where each shirt costs $5 to make and sells for $10. Each game lasts two hours and sell 100 shirts per game where the earning is always $8 per hour at other job.

Explanation of Solution

  $\begin{array}{l}\text{The revenue by selling one T-shirt = }\left(\text{revenue}-\text{expenses}\right)\hfill \\ \text{ = \$10}-\text{\$5}\hfill \\ \text{ = \$5}\hfill \\ \text{Accounting profit for a game = 100}\times \text{\$5}\hfill \\ \text{ = \$500}\hfill \end{array}$

And, economic profit

Implicit cost = $8 per hour, and the game is for 2 hours,

Therefore, the total implicit cost is $16 for a game.

Here,

  $\begin{array}{l}\text{Economic profit = \$500}-\text{\$16}\hfill \\ \text{ = \$484}\hfill \end{array}$

Therefore, the correct option is c.

Economics Concept Introduction

Introduction:

The costs which are already occurred but are not shown or visible as a cost or expense are implicit costs.

The costs which are used to determine the profitability of the company and consider as tangible expenses are explicit costs.