If a firm traded on the New York Stock Exchange posts an accounting profit of $10 million,then the firm is making a positive economic profit
A) only if the Securities and Exchange Commission (SEC) approves the accounting report.
B) only if the firm's opportunity cost is less than $10 million.
C) only if the firm's opportunity benefit is more than $10 million.
D) only if the firm's management receives stock compensation.

Question

Quizplus · Accepted Answer

An economic profit is the difference between total revenue and the cost of all inputs, including opportunity costs. Therefore, the firm may not be making a positive economic profit even if it posts an accounting profit of $10 million. The opportunity cost of a firm is the value of the next best alternative foregone. If the opportunity cost of the inputs used to generate the $10 million accounting profit is more than $10 million, the firm is not making a positive economic profit. Therefore, the correct answer is B, only if the firm's opportunity cost is less than $10 million.

If a Firm Traded on the New York Stock Exchange