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Suppose that a firm produces 200,000 units a year and sells them all for $10 each. The explicit costs of production are $1,500,000 and the implicit costs of production are $300,000. The firm earns an accounting profit of ________ and an economic profit of ________.Multiple Choice$500,000; $200,000$500,000; $1,700,000$1,700,000; $200,000$1,700,000; $500,000

Question

Suppose that a firm produces 200,000 units a year and sells them all for 10each.Theexplicitcostsofproductionare10 each. The explicit costs of production are 1,500,000 and the implicit costs of production are 300,000. The firm earns an accounting profit of ________ and an economic profit of ________.Multiple Choice500,000; 200,000200,000500,000; 1,700,0001,700,0001,700,000; 200,000200,0001,700,000; $500,000

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Solution

First, let's calculate the total revenue, which is the amount of money the firm receives from selling its product. This is calculated by multiplying the price of each unit by the number of units sold. In this case, the firm sells 200,000 units at 10each,sothetotalrevenueis200,000∗10 each, so the total revenue is 200,000 * 10 = $2,000,000.

Next, let's calculate the accounting profit, which is the total revenue minus the explicit costs. The explicit costs are given as 1,500,000.So,theaccountingprofitis1,500,000. So, the accounting profit is 2,000,000 - 1,500,000=1,500,000 = 500,000.

Finally, let's calculate the economic profit, which is the total revenue minus both the explicit and implicit costs. The implicit costs are given as 300,000.So,theeconomicprofitis300,000. So, the economic profit is 2,000,000 - 1,500,000−1,500,000 - 300,000 = $200,000.

So, the firm earns an accounting profit of 500,000andaneconomicprofitof500,000 and an economic profit of 200,000. The correct answer is 500,000;500,000; 200,000.

This problem has been solved

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