If a firm generates $251,000 in revenue, earns $97,000 in economic profit, and its implicit costs are $83,000, how much are its explicit costs?

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BlackTom AI · Accepted Answer

We’re given: revenue = 251,000; economic profit = 97,000; implicit costs = 83,000. 
Economic profit is defined as total revenue minus explicit costs minus implicit costs: Economic profit = Revenue − Explicit costs − Implicit costs.
Rearranging to solve for explicit costs: Explicit costs = Revenue − Economic profit − Implicit costs.
Plug in the numbers: Explicit costs = 251,000 − 97,000 − 83,000. 
Compute step by step: 251,000 − 97,000 = 154,000; then 154,000 − 83,000 = 71,000.

Now evaluate the options:
- Option a: 94,000. If explicit costs were 94,000, then economic profit would be Revenue − Explicit costs − Implicit costs = 251,000 − 94,000 − 83,000 = 74,000, which does not match the given 97,000. Therefore this is incorrect.
- Option b: 71,000. If explicit costs are 71,000, then economic profit = 251,000 − 71,000 − 83,000 = 97,000, which matches the given economic profit. This is consistent.
- Option c: 85,000. If explicit costs are 85,000, then economic profit = 251,000 − 85,000 − 83,000 = 83,000, which is too low compared to 97,000. Therefore this is incorrect.
- Option d: 154,000. If explicit costs are 154,000, then economic profit = 251,000 − 154,000 − 83,000 = 14,000, which is far from 97,000. Therefore this is incorrect.

Summary: Using the economic-profit relationship yields explicit costs = 71,000, which aligns with option b. The other options produce economic profits that do not match the given 97,000, revealing their inconsistency.

THC - MCD2020 - T3 - 2025 Homework Quiz 6 - Cost of Production

If a firm generates $251,000 in revenue, earns $97,000 in economic profit, and its implicit costs are $83,000, how much are its explicit costs?

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