How do you calculate economic profit without knowing the quantity?
Here is the information included in the question I'm trying to answer regarding finding the economic profit.
price - $8.50
current output - 100 units
ATC at current output - $9.00
AVC at current output - $8.00
total fixed costs - $100
MC at current output - $8.00
How do I find the economic profit from the given information. A formula would be extremely helpful - thanks!!
To calculate economic profit, you need to have information about revenue, explicit costs, and implicit costs.
Given the information you provided, we can calculate the explicit costs and the revenue first.
Explicit costs include the total variable costs (TVC) and the total fixed costs (TFC). In this case, the TVC is the product of the average variable cost (AVC) and the current output, while the TFC is the given value of $100:
TVC = AVC * current output
= $8.00 * 100
= $800
TFC = $100
Next, we can calculate the revenue, which is the product of the price and the current output:
Revenue = price * current output
= $8.50 * 100
= $850
Now, we can calculate the explicit costs:
Explicit costs = TVC + TFC
= $800 + $100
= $900
To find the economic profit, we need to subtract the explicit costs from the revenue:
Economic Profit = Revenue - Explicit costs
= $850 - $900
= -$50
The negative result indicates a loss or negative economic profit.
In summary, the formula for calculating economic profit is:
Economic Profit = Revenue - Explicit costs
Explicit costs = Total Variable Costs + Total Fixed Costs
Revenue = Price * Current Output