Asked by Latoya Alexander on Apr 29, 2024
Verified
Bessie wants to calculate the accounting and economic profits of her cattle farm in Nebraska.She pays $30,000 per year in overhead,$80,000 in wages,and $20,000 in insurance.She forgoes $30,000 per year that she could make as a teacher.If her total revenue equals $140,000,that means her accounting profit is _____ and her economic profit is _____.
A) $10,000;-$20,000
B) $30,000;-$30,000
C) -$10,000;-$10,000
D) $60,000;$30,000
Accounting Profit
The total revenue of a business minus its explicit costs; essentially the net income reported on the financial statements.
Economic Profit
The difference between the total revenue received by a business and the total costs, including both explicit and implicit costs.
Overhead
Ongoing business expenses not directly attributed to creating a product or service.
- Acquire the ability to compute economic and accounting profits and differentiate between the two.
- Recognize the various expenses incurred in operating a business or acquiring an education.
Verified Answer
AF
Abigail FloresMay 03, 2024
Final Answer :
A
Explanation :
Accounting profit is calculated by subtracting explicit costs from total revenue. In this case, explicit costs include overhead ($30,000), wages ($80,000), and insurance ($20,000), totaling $130,000. Subtracting this from the total revenue ($140,000) gives an accounting profit of $10,000. Economic profit subtracts both explicit and implicit costs (the forgone income of $30,000) from total revenue. Therefore, the economic profit is $10,000 (accounting profit) minus $30,000 (implicit cost), resulting in -$20,000.
Learning Objectives
- Acquire the ability to compute economic and accounting profits and differentiate between the two.
- Recognize the various expenses incurred in operating a business or acquiring an education.
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