Suppose a firm sells its product at a price lower than the per-unit implicit costs of producing it. Which of the following statements is definitely true?
A)The firm will earn positive accounting and economic profits.
B)The firm will face accounting and economic losses.
C)The firm will face an accounting loss but earn positive economic profits.
D)The firm may earn positive accounting profits but will face economic losses.

Question

Quizplus · Accepted Answer

Implicit costs are non-monetary costs, such as the opportunity cost of the owner's capital. If a firm sells its product at a price lower than its per-unit implicit costs, it means that the firm is not covering these non-monetary costs, leading to economic losses. However, accounting profits, which consider only explicit (monetary) costs and revenues, might still be positive if the price covers these explicit costs.

Suppose a Firm Sells Its Product at a Price Lower