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\begin{tabular}{l} If a firm generates \( \$ 240,000 \) in revenue, earns \( \$ 120,000 \) in economic \\ profit, and its explicit costs are \( \$ 80,000 \), how much are its implicit \\ costs? \\ \hline OA) \( \$ 40,000 \) \\ \hline OB) \( \$ 60,000 \) \\ \hline OC) \( \$ 80,000 \) \\ \hline OD) \( \$ 120,000 \)\end{tabular}

Ask by Weston Ellis. in the United States
Mar 15,2025

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Answer

The implicit costs are \$40,000.

Solution

We start with the formula for economic profit: \[ \text{Economic Profit} = \text{Revenue} - \text{Explicit Costs} - \text{Implicit Costs}. \] Plug in the given values: \[ 120{,}000 = 240{,}000 - 80{,}000 - \text{Implicit Costs}. \] First, simplify the right-hand side: \[ 240{,}000 - 80{,}000 = 160{,}000. \] Now, the equation becomes: \[ 120{,}000 = 160{,}000 - \text{Implicit Costs}. \] Solve for the implicit costs by subtracting \(120{,}000\) from \(160{,}000\): \[ \text{Implicit Costs} = 160{,}000 - 120{,}000 = 40{,}000. \] Thus, the implicit costs are \( \$ 40{,}000 \).

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To solve for the implicit costs, we can use the formula for economic profit, which is: \[ \text{Economic Profit} = \text{Total Revenue} - \text{Explicit Costs} - \text{Implicit Costs} \] Given: - Total Revenue = \( \$ 240,000 \) - Economic Profit = \( \$ 120,000 \) - Explicit Costs = \( \$ 80,000 \) Plugging in the numbers into the formula: \[ 120,000 = 240,000 - 80,000 - \text{Implicit Costs} \] Simplifying this: \[ 120,000 = 240,000 - 80,000 - \text{Implicit Costs} \] \[ 120,000 = 160,000 - \text{Implicit Costs} \] Now, rearranging to solve for implicit costs: \[ \text{Implicit Costs} = 160,000 - 120,000 = 40,000 \] Thus, the implicit costs amount to \( \$ 40,000 \). **The answer is: OA) \( \$ 40,000 \)**

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