Calculate Economic, Accounting Proft and Fixed costs?

Question

Hi there,

could someone can help me answer this economics question? I'm a little confused even after researching how to do this. I need to find the accounting and economics profit, as well as find their fixed costs, given this info:

Initial investment = $500,000 (see below, it was for ads)

Total revenues = $5.0 million

Total Listed costs (see below) = $4.5 million

Costs:

Payments to furniture subcontractors = $3.5 million

Shipping Costs = .1 million

Lease Payments on Office Space and PC's = $ .1 million

Overhead Expenses: Insurance, etc. = $ 500,000

Advertising on Internet & Magazines = $ .5 million

Additional Expenses (phones,business, etc) = $ .2 million

Thank you for your help!!

Answer 1

Accounting profit=

= Total revenues - Initial investment  - Total Listed costs= =$5.0 million - $500,000  - $4.5 million = $0

Economic profit=

= Total revenues - Initial investment  - Total Listed costs - Opportunity revenue =

=$5.0 million - $500,000  - $4.5 million - Opportunity revenue=

= $0 - Opportunity revenue = - (Opportunity revenue)  < Economic profit is negative.

Opportunity revenue = interest rate, risk compenstion, etc.

Fixed costs - doubtfull, some parts in your list can include both fixed and variable costs in one line.

Fixed costs =

+Payments to furniture subcontractors

+Lease Payments on Office Space and PC's

+Additional Expenses (phones,business, etc)

=

+$3.5 million

+$0.1 million

+$0.2 million

=$3.9 million

But actually fixed costs could be also different - for instance you may have already payed to advertising company all sum ahead instead of each month, office expences also may depend on quantity of workers, the same lease payments for office equipment - it can be sold to close leasing.

You may also use another method for FC calculation FC=TC-VC