Question

3. Which of the following would be included in accounting prot and/or economic prot? Explain why....

3. Which of the following would be included in accounting prot and/or economic prot? Explain why. (a) Revenue from beef sold $150,000 (b) Revenue from almonds sold $30,000 (c) Revenue from walnuts that would have been planted if almonds had not $40,000 (d) Rent that would have been received if grazing land had been rented out $10,000 (e) Production cost of beef $20,000 (f) Production cost of almonds: $10,000 (g) Salary at the best job you could have otherwise worked: $60,000

Homework Answers

Answer #1

(A) It would be recorded in accounting and economic profit. (under total revenue earned)

(B) It would be recorded in accounting and economic profit (under total revenue earned)

(C) It would be recorded in economic profit only. (Under Implicit cost)

(D) It would be recorded in economic profit only. (Under implicit cost)

(E) It would be recorded in accounting and economic profit (Explicit Cost)

(F) It would be recorded in accounting and economic profit (Explicit Cost)

(G) It would be recorded in economic profit (Implicit cost)

Accounting profit: Total Revenue - Explicit Cost

Economic Profit = Total Revenue - Total Economic Cost, where total economic costs = Implicit cost + Explicit Cost

Implicit Cost: Implicit cost is the opportunity cost, the cost of next best alternative activity.

Explicit Cost: Direct operating expenses borne by the firm.

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