Accounting vs Economic Profit
1. All of the following are included in the calculation of accounting profit EXCEPT which
of option? a. explicit costs b. variable costs c. total revenue d. fixed cost e. implicit costs
Economic profits are less than accounting profits because economic profits include implicit costs
and explicit costs, but accounting profit only includes explicit cost.
2. Which of the following best describes what a firm’s objective is? a. maximize accounting
profit b. Maximize total utility c. Maximize total revenue d. Minimize total costs e. maximize
economic profit
3. What must true if a firm is only earning a normal profit? a. Economic profits are positive.
b. Accounting profits equal zero. c. Economic profits are negative, d. Economic profits equal
zero. e. Accounting profits are negative.
The definition of normal profit is earning zero economic profits. A firm may still be earning
accounting profits even if its economic profit is zero.
4. If firms in an industry earn less than a normal profit, a. some existing firms will exit. b. the
price of the industry’s product will eventually fall. c. new firms will enter. d. the price of the
industry’s product will eventually rise. e. supply will increase.
5. Which of the following is the difference between accounting profit and economic profit? a.
Accounting profit considers all costs. b. Economic profit considers only implicit costs. c. Normal
profit. d. Equal to excess profit. e. Zero.
6. If accounting profit is less than normal profit, then the firm is earning a. an economic loss. b.
an economic profit. c. an excess profit. d. a negative accounting profit. e. a profit equal to
opportunity cost.
7. Assume that you own your own business and your explicit costs are $10,000 per year. You
could earn $11,000 in your next-best alternative job. Your revenue is $22,000 per year. What is
your accounting profit? a. $1000. b. $2000. c. $11,000. d. $12,000. e. $22,000.
8. T-Rex Enterprises produces and sells dinosaur costumes in a competitive market. The total
cost of producing 100 dinosaur costumes is $9000. The price of a dinosaur costume is $80. What
is this firm’s economic profit (or loss)?a. -$8020, b. -$1000. c. $9000 d. $8000 e. -$2000
