Question

Suppose that a firm produces 200,000 units a year and sells them all for Rs 10 each. The explicit costs of production are Rs 1,500,000 and the implicit costs of production are Rs 300,000. The economic and accounting profits for the firm are respectively.

• A. Rs 500,000 and Rs 200,000.
• B. Rs 200,000 and Rs 500,000
• C. Rs 300,000 and Rs 400,000
• D. Rs 400,000 and Rs 300,000.

Answer 1

The correct option is B

Rs 200,000 and Rs 500,000

$TotalRevenue=200000\times 10=Rs2000000$
$EconomicCosts=Rs1500000+Rs300000Rs180000$
$EconomicProfit=Rs200000-Rs1800000=Rs200000$

$AccountingCost=Rs1500000$
$AccountingProfit=Rs2000000-Rs1500000=Rs500000$