Question

A firm had sales revenue of \(1\) million last year. It spent \(600,000\) on labor, \(150,000\) on capital and \( 200,000\) on materials. What was the firm's accounting profit?

Short answer

The firm's accounting profit last year was \(50,000\).

Step-by-step solution

Identify the given values

The firm had sales revenue of \(1\) million last year. It spent \(600,000\) on labor, \(150,000\) on capital, and \( 200,000\) on materials.

Calculate the total costs

Add up the costs for labor, capital, and materials to find the total costs: \[Total\_Costs = Labor + Capital + Materials = 600,000 + 150,000 + 200,000\]

Solve for total costs

Now, calculate the value of the total costs: \[Total\_Costs = 600,000 + 150,000 + 200,000 = 950,000\]

Calculate the accounting profit

Subtract the total costs from the sales revenue to get the accounting profit: \[Accounting\_Profit = Sales\_Revenue - Total\_Costs = 1,000,000 - 950,000\]

Solve for accounting profit

Now, calculate the value of the accounting profit: \[Accounting\_Profit = 1,000,000 - 950,000 = 50,000\] The firm's accounting profit last year was \(50,000\).