Question

In Problem $21-6$, that you have now operated your consulting firm for a year. At the end of the first year, your total revenues are $\$77,250$. Based on the information in Problem , what is the accounting profit, and what is your economic profit?

Short answer

The accounting profit is$\$40,250$

The economic profit is zero

Step-by-step solution

Introduction

The amount of money earned after both explicit and implicit costs have been taken into account is referred to as economic profit. Accounting profit refers to a company's net income, or revenue less expenses. Total costs are subtracted from a company's or investment's total income or return to calculate economic profit.

Explanation

Accounting profit = total revenue minus explicit costs. The entire expenditure is $\$37,000(12,000+1,000+20,000+4,000=37,000)$. As a result, the accounting profit is $\$40,250(77,250-37,000=40,250)$

Total revenue is subtracted from explicit and implicit costs to arrive at the economic profit. We have an unspoken cost.$\$40,250$As a result, there is no financial profit.$(77,250-37,000-40,250=0)$