Consider the following information about a business Rodrigue

Consider the following information about a business Rodriguez opened last year: price = $5; quantity sold = 15,233; implicit cost = $18,000; explicit cost = $33,000. What was Rodriguez\'s accounting profit and economic profit? Show your work.

Solution

Accounting profit considers only explicit costs and it does not take implicit costs into account. Economic profit takes both explicit and implicit costs into consideration.

Accounting profit = total revenue - explicit costs

Economic profit = total revenue - (explicit costs + implicit costs)

Here, total revenue = price * quantity sold = $5 * 15,233 = $76,165

Accounting profit = total revenue - explicit costs = $76,165 - $33,000 = $43,165

Economic profit = total revenue - (explicit costs + implicit costs) = $76,165 - ($33,000 + $18,000) = $76,165 - $51,000 = $25,165.