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Accounting vs Economic Profit 1. All of the following are ..., Study notes of Accounting

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.

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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
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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.

  1. 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.
  2. 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.
  3. 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.
  4. 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.
  5. 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. $8000 e. -$
  1. Nakawé, LLC produces and sells greeting cards in a competitive market. The total cost of producing 1000 greeting cards is $ 4000. The price of a greeting card is $ 4. What is this firm’s economic profit (or loss)? a. $0, b. $2,400, c. -$3996, d. $4000, e.$1600.

  2. amanik Unlimited produces and sells 10,000, greeting cards in a competitive market. It has explicit costs of $4, 000 and opportunity cost of capital of $1,000. If the owner of Yamanik Unlimited closed her business for good and took another job, she could be earning $31,000 per year. The price of a greeting card is $5. What is Yamanik Unlimited’s economic profit? a. $45,000 b. $15,000 c. $14,000 d. $46,000. E. $12,

  3. When Yooko Industries makes 2000 widgets, the cost of producing a typical widget is$ which includes implicit costs of $2. What is Yooko Industies economic profit (or loss) and accounting profit (or loss) if the price of a widget is $4? a. Economic Profit= -2000 (a loss); Accounting Profit=$ b. Economic Profit= -$4000 (a loss); Accounting Profit=$ c. Economic Profit= $2000 (a loss); Accounting Profit=$4000 d. Economic Profit= -$4000 (a loss); Accounting Profit=$4000. e. Economic Profit= $4000 (a loss); Accounting Profit=$

Answer each of the following, based on the information provided. a. Calculate your accounting profit. b. If your other employment opportunity is to earn $1000 per month working at a t-shirt stand (and you are equally happy selling fruit or t-shirts), what is your economic profit? Should you continue selling fruit? Explain. c. What happens to your economic profit if you enjoy selling t-shirts and would be willing to forgo up to $250 per month to work selling t-shirts rather than fruit? Should you continue selling fruit? Explain. Assume that you own, manage, and are the only employee for a t-shirt concession at a university sports arena. The financial information for the business is given below. a. What is your accounting profit? b. Your next-best alternative job is to work as a manager for another local retail business. If your economic profit is zero, how much could you earn as a manager for another business? c. Assume you enjoy owning and operating the t-shirt stand (you value it at $100 per day). If your total costs increase to $1600, and if you shut down total cost would be zero, should you continue selling tshirts? Explain.