module 52 Defining Profit 535
Section(^10)
(^) Behind
(^) the
(^) Supply
(^) Curve:
(^) Profit,
(^) Production,
(^) and
(^) Costs
Tackle the Test: Free-Response Questions
- Your firm is selling 10,000 units of output at a price of $10 per
unit. Your firm’s total explicit cost is $70,000. Your firm’s
implicit cost of capital is $10,000, and your opportunity cost
is $20,000.
a. Calculate total revenue.
b. Calculate total implicit cost.
c. Calculate your accounting profit.
d. Calculate your economic profit.
e. What does the value of your economic profit calculated in
part d tell you?
Answer (5 points)
1 point:Total revenue =$100,000
1 point:Total implicit cost =$30,000
1 point:Accounting profit =$30,000
1 point:Economic profit =$0
1 point:Because your firm earns normal profit, there is no better alternative
use for your resources.
- Sunny owns and operates Sunny’s Sno Cone Stand. Use the
data in the table provided to answer the questions below.
Sunny’s Sno Cone Stand: January
Price of Sno Cone $2
Sno Cones sold 2,000
Explicit cost $400
Depreciation $100
Implicit cost of capital $200
a. Calculate Sunny’s Sno Cone Stand’s total revenue for
January.
b. Calculate Sunny’s Sno Cone Stand’s accounting profit
for January.
c. What additional information would Sunny need in order
to determine whether or not to continue operating the
Sno Cone Stand?
d. Explain how Sunny would determine whether or not
to continue operating the business on the basis of these
numbers.