Suppose Ben buys out Jerry's ownership in a firm but retains him as a salaried employee.Jerry gets a salary equal to the value of the share that he held in the firm.In this case,which of the following statements is true?
A)The firm's economic profit increases.
B)The firm's economic profit decreases.
C)There is no change in the economic profit of the firm.
D)There is no change in the accounting profit of the firm.
E)The firm's accounting profit increases.

Question

Quizplus · Accepted Answer

The economic profit remains unchanged because Jerry's salary is equal to the value of his share, meaning the firm's costs and revenues are balanced as before.

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