Your firm is selling 1,000 units at a price of ₹ 10 per unit. The firm’s total explicit cost is ₹…
Total Revenue is 1,000 × ₹ 10 = ₹ 10,000. Accounting profit equals Total Revenue minus Explicit Costs: ₹ 10,000 - ₹ 8,000 = ₹ 2,000. Economic profit additionally deducts…
Choose your answer
Your firm is selling 1,000 units at a price of ₹ 10 per unit. The firm’s total explicit cost is ₹ 8,000. The firm’s implicit cost is ₹ 1,000 and the opportunity cost of your time in managing the firm is ₹ 1,000. In the above situation, which one of the following is true ?
Answer and explanation
Correct answer B
Total Revenue is 1,000 × ₹ 10 = ₹ 10,000. Accounting profit equals Total Revenue minus Explicit Costs: ₹ 10,000 - ₹ 8,000 = ₹ 2,000. Economic profit additionally deducts implicit and opportunity costs (₹ 1,000 + ₹ 1,000 = ₹ 2,000), yielding ₹ 0. Thus, economic profit (₹ 0) is strictly less than accounting profit (₹ 2,000).
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UGC NET Management