CA Foundation P4 · Chapter 3 · Question 15 of 15
A firm's total revenue for the year is Rs. 11,00,000 and its explicit (accounting) costs are Rs. 8,00,000. The owner's implicit costs, including normal profit, are Rs. 2,00,000. Which statement is correct?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) Accounting profit is Rs. 3,00,000 and economic profit is Rs. 1,00,000
Explanation
Accounting profit = revenue - explicit costs = 11,00,000 - 8,00,000 = Rs. 3,00,000. Economic profit = revenue - (explicit + implicit costs) = 11,00,000 - 10,00,000 = Rs. 1,00,000. Since economic profit is positive, the firm earns supernormal profit, not merely normal profit.
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