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Microeconomics

13th Edition
Roger A. Arnold
ISBN: 9781337617406

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Microeconomics

13th Edition
Roger A. Arnold
ISBN: 9781337617406
Textbook Problem

Price = $20, quantity = 400 units, unit cost = $15, implicit costs = $4,000. What does economic profit equal?

To determine

Estimate the value of economic profit.

Explanation

Economic profit can be calculated by subtracting both explicit costs and implicit costs from the total revenue.

Economic profit=Total revenueExplicit costs+Implicit costs        (1)

If price is $20, quantity is 400 units; then the total revenue can be calculated as follows:

Total revenue=Price×Quantity=20×400=8,000

Thus, the value of total revenue is $8,000.

If unit cost is $15 and quantity is 400, then the value of explicit cost can be calculated as follows:

Explicit cost=Unit cost×Quantity=15×400=6,000

Thus, the value of explicit cost is $6,000

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