If total revenue is 200,000, wages are 100,000, and the opportunity cost of the owner's capital is 30,000, calculate the accounting profit.

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Prepare for the OnRamps Economics College Exam with detailed multiple-choice questions and explanations. Strengthen your understanding and boost your performance!

Multiple Choice

If total revenue is 200,000, wages are 100,000, and the opportunity cost of the owner's capital is 30,000, calculate the accounting profit.

Explanation:
Accounting profit is revenue minus explicit costs. It doesn’t subtract opportunity costs. Here, total revenue is 200,000 and explicit costs (wages) are 100,000, so accounting profit is 200,000 − 100,000 = 100,000. The owner’s capital opportunity cost of 30,000 isn’t included in accounting profit (it would be subtracted when calculating economic profit). If you subtracted it as well, economic profit would be 200,000 − 100,000 − 30,000 = 70,000.

Accounting profit is revenue minus explicit costs. It doesn’t subtract opportunity costs. Here, total revenue is 200,000 and explicit costs (wages) are 100,000, so accounting profit is 200,000 − 100,000 = 100,000. The owner’s capital opportunity cost of 30,000 isn’t included in accounting profit (it would be subtracted when calculating economic profit). If you subtracted it as well, economic profit would be 200,000 − 100,000 − 30,000 = 70,000.

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