Given the information that follows, how much are (a) accounting profits? (b) economic profits? Sales: $2 million; explicit costs: $1 million; wages you and your family members could have earned doing the same work for another firm: $150,000; return you could have earned by investing your money elsewhere: $100,000
What will be an ideal response?
Sales ($2 million) - Explicit costs ($1 million) = Accounting Profits ($1 million). Accounting Profits ($1 million) - Implicit Costs ($150,000 + $100,000) = Economic Profit: $750,000
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