Ralphs Travel Agency had accounting profits of 50000 and imp

Ralph\'s Travel Agency had accounting profits of $50,000 and implicit costs of $30,000. What were economic profits?

Solution

Answer:- Economic profit is the differnce between revenue received by business and deduction of implict cost and explict cost of firm.

Explict cost are the actual cost, as rent payment, wages, salaries, traelling expenses etc.

Implict cost are cost of like oppurtunity cost, which shows where we get some profit or loss, its use for the fianancial analysis in the firm for alternative options.

Economic profit = Accounting profit - Implict cost

= $50,000 - $30,000

= $20,000

Accounting profit come from total revenue minus explict cost.