The Lynx Manufacturing Company produces components used in electronic toys. In fiscal year 2017, Lynx earned an accounting profit of $3 million. However, Lynx's production facilities might have also been used to produce components for mobile phones, which would have generated $2 million in revenues and saved the company $500,000 in production costs. Which of the following statements is true? a) lynx earned an economic profit of $5.5 million. b) lynx earned an economic profit of $500,000. c) lynx suffered an economic loss of $500,000. d) lynx suffered an economic loss of $2.5 million.

Question

Business

Cheeto

13 June, 06:57

The Lynx Manufacturing Company produces components used in electronic toys. In fiscal year 2017, Lynx earned an accounting profit of $3 million. However, Lynx's production facilities might have also been used to produce components for mobile phones, which would have generated $2 million in revenues and saved the company $500,000 in production costs. Which of the following statements is true? a) lynx earned an economic profit of $5.5 million. b) lynx earned an economic profit of $500,000. c) lynx suffered an economic loss of $500,000. d) lynx suffered an economic loss of $2.5 million.

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Answers (2)

Know the Answer?

Rhett Stein · Answer 1

B) lynx earned an economic profit of $500,000.

Explanation:

economic profit/loss = accounting profit - opportunity costs

economic profit = $3,000,000 - ($2,000,000 + $500,000) = $3,000,000 - $2,500,000 = $500,000

Opportunity costs are defined as the extra costs (or lost benefits) resulting from choosing one activity (or investment) over another alternative.

Carson Smith · Answer 2

B) lynx earned an economic profit of $500,000

Explanation:

Economic profit is the difference between revenue received and the cost of inputs used and any opportunity cost.

Economic profit = total income - total expense - opportunity cost

Given that

Total income = 3 million

Total expenses = 500000

Opportunity cost = 2million

Economic profit = 3000000 - 500000 - 2000000

Economic profit = 500,000

Therefore, lynx earned economic profit of $500,000