Chapter 52, Problem 1FRQ

a)

To determine

Total revenue

Explanation of Solution

Quantity output = 10,000

Price = $10 per unit

Then,

  $\begin{array}{l}\text{Total revenue = Price per unit}\times \text{Qunatity}\hfill \\ \text{ = \$10}\times \text{10,000}\hfill \\ \text{ = \$100,000}\hfill \end{array}$

Economics Concept Introduction

Introduction: Total revenue is the multiplication of quantity output and the price per unit.

b)

To determine

Total implicit cost

Explanation of Solution

Implicit cost of capital = $10,000

Opportunity cost = $20,000

Then, total implicit cost would be:

  $\begin{array}{l}\text{Implicit cost = Implicit cost of capital}+\text{ Opportunity cost}\hfill \\ =\$10,000+\$20,000\hfill \\ =\$30,000\hfill \end{array}$

Economics Concept Introduction

Introduction: The costs which are already occurred but are not shown or visible as a cost or expense are implicit costs.

c)

To determine

Accounting profit

Explanation of Solution

Explicit cost = $70,000

  $\begin{array}{l}\text{Accounting profit = Total revenue}-\text{Explicit cost}\hfill \\ =\$100,000-\$70,000\hfill \\ =\$30,000\hfill \end{array}$

Economics Concept Introduction

Introduction: The difference of total revenue and explicit cost refers to the accounting profit.

d)

To determine

Economic profit

Explanation of Solution

  $\begin{array}{l}\text{Economic profit = Revenue}-\text{Explicit cost}-\text{implicit cost}\hfill \\ =\$100,000-\$70,000-\$30,000\hfill \\ =\$0\hfill \end{array}$

Economics Concept Introduction

Introduction: Economic profit refers to the difference between the revenue which is received from the sale and the costs of inputs including opportunity costs.

e)

To determine

Better use of resources

Explanation of Solution

There is no better use of resources because the economic profit is $0 and the firm is earning a normal profit or no profit which means there is no better alternative to use for resources.

Economics Concept Introduction

Introduction: Economic profit refers to the difference between the revenue which is received from the sale and the costs of inputs including opportunity costs.