Answer:
$230,000 and $94,000
Explanation:
The computation is shown below:
For accounting profit
= Total revenue - explicit cost
where,
Total revenue is $380,000
And, the explicit cost is
= Utilities + payment to workers + annual lease on building
= $8,000 + $120,000 + $22,000
= $150,000
So, the accounting profit is
= $380,000 - $150,000
= $230,000
And, the economic profit is
= Total revenue - explicit cost - implicit cost
where,
total revenue is $380,000
Explicit cost is $150,000
And, the implicit cost is
= Value of Entrepreneur's talent in the next best entrepreneurial activity + Entrepreneur's potential earnings as a salaried worker + Entrepreneur's forgone interest on personal funds used to finance the business
= $80,000 + $50,000 + $6,000
= $136,000
So, the economic profit is
= $380,000 - $150,000 - $136,000
= $94,000
The implicit cost is a type of opportunity cost which can be held for some specific purpose while the explicit cost is the out of pocket cost or the expenses incurred by the firm
