
Accounting profit and economic profit.

Answer to Problem 1CQQ
Option ‘a’ is correct.
Explanation of Solution
Option (a):
When Xavier spend $10 for ingredients and sell $60 worth of lemonade, then the accounting profit will be
Option (b):
Xavier accounting profit is not $90, because an accounting profit is the total revenue minus the total explicit cost. Economic profit is not $50, because economic profit is total revenue minus implicit and explicit cost. Thus, option ‘b’ is incorrect.
Option (c):
When Xavier spends $10 for ingredients and sells $60 worth of lemonade, Xavier accounting profit will not be $10, because an accounting profit is the total revenue minus the total explicit cost. Economic profit is not $50, because economic profit is the total revenue minus implicit and explicit cost. Thus, option ‘c’ is incorrect.
Option (d):
When Xavier spend $10 for ingredients and sell $60 worth of lemonade, then the accounting profit will be (total revenue – total explicit cost)
Concept introduction:
Accounting profit: Accounting profit refers to the total revenue minus total explicit cost
Economic profit: Economic profit refers to the total revenue minus implicit and explicit cost.
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