Suppose Joan uses her savings to purchase computer equipment for her new consulting business.Soon after this, the market interest rate rises.As a result, her
A)explicit costs rise immediately
B)accounting profit falls immediately
C)accounting profit rises immediately
D)economic profit rises immediately
E)economic profit falls immediately

Question

Quizplus · Accepted Answer

When the market interest rate rises, the opportunity cost of using her savings for her business increases. This means that her economic profit (which takes into account implicit costs such as opportunity costs) will decrease, even if her accounting profit (which only takes into account explicit costs) remains the same or increases.

Suppose Joan Uses Her Savings to Purchase Computer Equipment for Her