Question

Continuing from Exercise 7.1, the firm’s factory sits on land owned by the firm that it could rent for$\$30,000$per year. What was the firm’s economic profit last year?

Short answer

The firm's economic profit was$\$20,000$last year.

Step-by-step solution

Step 1. Given information

$$\begin{gathered} Salesrevenue:\$1Million \\ Labor:\$600,000 \\ Capital:\$150,000 \\ Materials:\$200,000 \\ Rent:\$30,000 \end{gathered}$$

Step 2. calculation

Economic profit = Accounting profit$-$implicit cost

$$\begin{gathered} =\$50,000-\$30,000 \\ =\$20,000. \end{gathered}$$

So, The Economic profit of the firm last year is$\$20,000$

Final answer

The Economic profit of the firm last year is$\$20000$