Compute the economic profit of the firm if Sales-10000,material cost-3000,labour cost-2000,Administration cost-1000,own capital invested is 20000 and opportunity cost of capital 10%.
To compute the economic profit of a firm, we need to subtract all the costs incurred by the firm from its total revenue, while also accounting for the opportunity cost of capital.
First, let's calculate the total costs incurred by the firm:
Total Costs = Material Cost + Labour Cost + Administration Cost
= $3000 + $2000 + $1000
= $6000
Next, let's calculate the total revenue of the firm:
Total Revenue = Sales
= $10000
Now, let's calculate the opportunity cost of capital:
Opportunity Cost of Capital = Own Capital Invested * Opportunity Cost Rate
= $20000 * 0.10
= $2000
Finally, we can calculate the economic profit of the firm:
Economic Profit = Total Revenue - Total Costs - Opportunity Cost of Capital
= $10000 - $6000 - $2000
= $2000
Therefore, the economic profit of the firm in this scenario is $2000.