Suppose Ben buys out Jerry's ownership in the firm but retains him as a salaried employee.If so,
A)economic profit increases
B)economic profit decreases
C)there is no change in economic profit
D)there is no change in accounting profit
E)accounting profit increases

Question

Quizplus · Accepted Answer

When Ben buys out Jerry's ownership, the firm's economic profit remains unchanged because the firm's total revenue and total costs, including opportunity costs, do not change. Jerry's salary as an employee is now an explicit cost, but his share of profits as an owner was an implicit cost, so the overall economic profit remains the same.

Suppose Ben Buys Out Jerry's Ownership in the Firm but Retains