Chapter 7, Problem 1SCQ

A firm had sales revenue of $\$\text{1}$ million last year. It spent $\$\text{6}00,000$ on labor, $\$\text{15}0,000$ on capital and $\$\text{2}00,000$ on materials. What was the firm’s accounting profit?

To determine

The Accounting profit of the firm.

Answer to Problem 1SCQ

The Accounting profit of the firm is $50,000.

Explanation of Solution

Given information:

Sales revenue: $1 Million

Costs:

Labor: $600,000

Capital: $150,000

Materials: $200,000

Calculation:

Accounting profit = total revenues minus explicit costs

= $1,000,000 − ($600,000 + $150,000 + $200,000)

=$50,000.

So, The Accounting profit of the firm is $50,000.

Economics Concept Introduction

Introduction:

Accounting Profit is defined as the amount which is left after deducting all the costs from the revenue earned by the company that is Total Revenue − Explicit Costs.