Question

Look at the Data Below then answer/calculate the totals in the questions that follow.

Answer 1

Answer and Explanation:

a. Explicit costs are actual costs incurred by the venture.

In this case those are;

= Annual lease on building + Payments to workers + Utilities (electricity, water, disposal) costs

= 22,000 + 120,000 + 8,000

= $150,000

b. Implicit costs are the opportunity costs (revenue foregone by not choosing other alternatives).

= Entrepreneur's potential earnings as a salaried worker  + Entrepreneur's potential economic profit from the next best entrepreneurial activity  + Entrepreneur's forgone interest on personal funds used to finance the business

= 50,000 + 80,000 + 6,000

= $136,000

c. Economic costs

= explicit + implicit costs

= 150,000 + 136,000

= $286,000

d. Accounting profit

= Revenue - explicit costs

= 380,000 - 150,000

= $230,000

e. Economic Profit

= Revenue - economic costs

= 380,000 - 286,000

= $94,000

f. New Accounting Profit

= Revenue - explicit costs

= 286,000 - 150,000

= $136,000

New Economic profit

= Revenue - economic costs

= 286,000 - 286,000

=$0