Economic Profit Calculation for a Differentiated Product Firm

Economic Profit Calculation Based on Per-Unit Profit

Calculating Profit for a New Venture

An entrepreneur leaves a salaried job that paid $60,000 per year to start a new consulting firm. In the first year, the firm generates total revenue of$150,000 and incurs explicit costs for rent, supplies, and marketing of $70,000. What is the firm's economic profit for the first year?

Rationale for Continuing Operations with Zero Economic Profit

A company that generates a positive accounting profit (where total revenue exceeds its direct, out-of-pocket expenses) should, from a purely financial perspective, always choose to continue its operations.

Match each business scenario or calculation to the correct economic term.

Evaluating Business Viability

A company generates $500,000 in total revenue for the year. An accountant calculates the company's profit as$200,000. However, an economist calculates the profit as $120,000 for the same period. Based on this information, what is the value of the company's implicit costs?

Contrasting Accounting and Economic Profit

A firm's total revenue minus both its explicit (out-of-pocket) costs and its implicit (opportunity) costs results in its ________ profit.

A small manufacturing company reports a yearly accounting profit of $100,000 after paying all its direct expenses. The owner, who manages the company, could earn a salary of$90,000 per year working for a competitor. Additionally, the factory building owned by the company could be rented out to another business for $25,000 per year. Which of the following statements provides the most accurate analysis of the company's financial situation?