Question

Consider a perfectly competitive, profit-max firm that sells its output for $10 each and produces and sells 1400 units. Its total variable costs are $5500 and its total fixed costs are $4000. The owner of the firm estimates he could make $2800 working elsewhere with the same time and effort. Calculate its accounting profit, carefully following all numeric directions.

Answer 1

Total revenue is 1400 x 10 = $14,000

Total cost is the sum of variable cost and fixed cost = $9500

Implicit cost = $2,800

We will ignore the implicit cost for calculation of accounting profit

Accounting profit = revenue minus cost

= $14,000 - $9500

= $4,500

Therefore accounting profit is $4,500.