Question

A firm had sales revenue of$\backslash (1$million last year. It spent$\backslash )600,000$on labor,$\backslash (150000$on capital and$\backslash )200,000$on materials. What was the firm’s accounting profit?

Short answer

The firm's accounting profit was$\$50000.$

Step-by-step solution

Step 1. Given Information

Last year, a company made$1$ million in sales. It spent$\$600,000$on labor,$\$150,000$on capital and$\$200,000$on materials.

Step 2. Accounting profit

A firm's accounting profit is the difference between its revenue and its explicit costs. Explicit costs include all kinds of out-of-pocket costs: wages to laborers, rents of capital, input costs, etc.

The firm's accounting profit

The firm's revenue is$\$1$million

The firm's e explicit costs =$\$600000+\$150000+\$200000=\$950000$

The firm's accounting profit =$\$1000000-\$950000=\$50000.$

The firm's accounting profit was$\$50000.$