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Suppose that a sole proprietorship is earning total revenue of Rs 1,00,000 and is incurring explicit costs of 75,000. If the owner could work for another company for Rs 30,000 a year, would you conclude that the firm is incurring an economic loss or getting profit? |
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Answer» Solution : ECONOMIC PROFIT = TR – TC (Explicit COST + Implicit cost) = 1,00,000 – 175,000 + 30,000) =-5000 (loss) So the firm is INCURRING an economic loss. |
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