Question 1

Accounting profit is _____

Accepted Answer

The answer of Accounting profit is _____
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Question 2

Suppose Ernie gives up his job as a financial advisor to P.E.T.S.,where he earned $30,000 per year,to open up a store selling pet-care products.He invested $10,000 in the store,which was originally savings that earned 5 percent interest.This year,the revenue from the new business was $50,000 and the explicit costs were $10,000.The economic profit earned by Ernie was _____

Accepted Answer

Economic profit is calculated as total revenue minus total costs, including both explicit and implicit costs. Ernie's implicit costs include the $30,000 salary he gave up and the $500 interest he would have earned on his savings. Therefore, his total costs are $10,000 (explicit) + $30,000 (salary) + $500 (interest) = $40,500. His economic profit is $50,000 (revenue) - $40,500 (total costs) = $9,500.

Question 3

Harvey develops gaming apps from home instead of working as an engineer and earning $50,000 a year.He has invested $20,000 to upgrade to the hardware that he needs and estimates his expenses at $17,000 a year.If downloads generate $45,000 in revenue during the first year,then his business _____

Accepted Answer

Accounting profit is calculated as total revenue minus explicit costs. Here, Harvey's revenue is $45,000, and his explicit costs (expenses) are $17,000, not including the $20,000 hardware upgrade as it is a one-time investment. So, his accounting profit is $45,000 - $17,000 = $28,000. Economic profit takes into account both explicit and implicit costs. The implicit cost here includes the forgone salary of $50,000. Adding the explicit costs of $17,000 to the implicit cost gives total costs of $67,000. Since his revenue is $45,000, he has an economic loss because he is not covering the opportunity cost of not working as an engineer plus his expenses.

Question 4

Maryann and Don want to open their own deli.To do so,Maryann must give up her job,where she earns $20,000 per year,and Don must give up his part-time job,where he earns $10,000 per year.They must liquidate their money market fund,which earns $1,000 interest annually.The rent on the building is $10,000 per year,and the expenses of such necessities as utilities,corned beef,and pickles are $35,000 annually.The minimum amount of revenue per year that would make it worthwhile,financially,for Maryann and Don to run the deli is _____

Accepted Answer

To calculate the minimum amount of revenue that would make it financially worthwhile for Maryann and Don to run the deli, we need to consider all the costs they would incur, including the opportunity costs of giving up their jobs and the interest from their money market fund, as well as the explicit costs of rent and other expenses. The total cost is the sum of their lost wages ($20,000 + $10,000), lost interest income ($1,000), rent ($10,000), and other expenses ($35,000), which equals $76,000.

Question 5

Harvey develops gaming apps from home instead of working as an engineer and earning $50,000 a year.He has invested $20,000 to upgrade to the hardware that he needs and estimates his expenses at $17,000 a year.Downloads generated $130,000 in revenue during the first year.What are his explicit costs?

Accepted Answer

Explicit costs are the direct, out-of-pocket expenses for a business. In this case, Harvey's explicit costs include the $20,000 for hardware upgrades and $17,000 in annual expenses, totaling $37,000.

Question 6

Which of the following would be shown on a firm's accounting statement?

Accepted Answer

Accounting statements typically only show revenue, explicit costs (such as salaries, rent, and materials), and accounting profit (revenue minus explicit costs). Implicit costs and economic profit are not typically included on accounting statements.

Question 7

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?

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.

Question 8

Economic profit is defined as _____

Accepted Answer

Economic profit is the difference between total revenue and total costs, including both explicit costs (such as rent and wages) and implicit costs (such as opportunity costs). The formula is Economic Profit = Total Revenue - Total Costs. Therefore, the correct answer is D, total revenue minus total costs.

Question 9

Harvey develops gaming apps from home instead of working as an engineer and earning $50,000 a year.He has invested $20,000 to upgrade to the hardware that he needs and estimates his expenses at $17,000 a year.Downloads generated $130,000 in revenue during the first year.What is his accounting profit?

Accepted Answer

Accounting profit is calculated as total revenue minus explicit costs. Harvey's revenue is $130,000, and his explicit costs include the $20,000 investment in hardware and $17,000 in annual expenses, totaling $37,000. Subtracting these costs from the revenue gives an accounting profit of $130,000 - $37,000 = $93,000.

Question 10

Normal profit is defined as _____

Accepted Answer

Normal profit is the minimum profit required by a firm to remain in business and cover its opportunity costs. It is the amount of profit that would be earned in the best alternative use of the resources used by the firm. Thus, normal profit is the profit required to ensure that all factors of production are fully compensated for their opportunity cost.

Question 11

A firm's accounting profit is equal to _____

Accepted Answer

Accounting profit is defined as total revenue minus explicit costs, which include direct costs such as wages, rent, and raw materials. Implicit costs, such as opportunity costs, are not included in accounting profit.

Question 12

Harvey develops gaming apps from home instead of working as an engineer and earning $50,000 a year.He has invested $20,000 to upgrade to the hardware that he needs and estimates his expenses at $17,000 a year.Downloads generated $130,000 in revenue during the first year.What are his implicit costs?

Accepted Answer

Implicit costs include the opportunity cost of not working as an engineer ($50,000).

Question 13

Economic profit is defined as _____

Accepted Answer

Economic profit takes into account the opportunity cost of resources used in production, which is the amount that must be paid to attract those resources from their best alternative use. Therefore, economic profit is calculated by subtracting the explicit and implicit costs from total revenue. Option A is incorrect as it only takes into account the explicit costs of production. Option B does not include the quantity of goods sold, which is necessary for calculating total revenue. Options D and E are incorrect as they do not subtract costs from total revenue.

Question 14

Suppose Ernie gives up his job as a financial advisor to P.E.T.S.,where he earned $30,000 per year,to open up a store selling pet-care products.He invested $10,000 in the store,which was originally savings that earned 5 percent interest.This year,the revenue from the new business was $50,000,and the explicit costs were $10,000.The accounting profit earned by Ernie was _____

Accepted Answer

The answer of Suppose Ernie gives up his job as...

Question 15

Opportunity cost usually _____

Accepted Answer

Opportunity cost is the cost of the next best alternative foregone, and it is involved in calculating economic profit. Economic profit takes into account opportunity cost, which includes the forgone profits from using resources in their next best alternative use. Option A is incorrect because opportunity cost can be measured. Option B is incorrect because opportunity cost applies to both labor and capital. Option D is incorrect because the opportunity cost can be equal to or less than the cash payment made to a resource.

Question 16

A firm's economic profit is equal to _____

Accepted Answer

Economic profit is calculated by subtracting both explicit (direct) and implicit (indirect or opportunity) costs from total revenue. Accounting profit only subtracts explicit costs, so economic profit is further reduced by implicit costs, making option E correct.

Question 17

Harvey develops gaming apps from home instead of working as an engineer and earning $50,000 a year.He has invested $20,000 to upgrade to the hardware that he needs and estimates his expenses at $17,000 a year.If downloads generate $50,000 in revenue during the first year,then his business _____

Accepted Answer

The answer of Harvey develops gaming apps from home instead...

Question 18

Economic profit is defined as _____

Accepted Answer

Economic profit is calculated by subtracting both implicit and explicit costs from total revenue, so the correct option is E. Option A only subtracts implicit costs, while option B only adds explicit costs, and option C only adds implicit costs. Option D doesn't represent economic profit at all.

Question 19

Harvey develops gaming apps from home instead of working as an engineer and earning $50,000 a year.He has invested $20,000 to upgrade to the hardware that he needs and estimates his expenses at $17,000 a year.Downloads generated $130,000 in revenue during the first year.What is his economic profit?

Accepted Answer

To calculate economic profit, we subtract both explicit and implicit costs from revenue.

Total explicit costs: $20,000 (investment) + $17,000 (annual expenses) = $37,000

Total revenue: $130,000

Total implicit costs (forgone salary as an engineer): $50,000

Economic Profit: $130,000 - $37,000 - $50,000 = $43,000

Therefore, the correct choice is C). Harvey's economic profit is $43,000.

Question 20

The difference between a firm's total revenue and what must be paid to attract resources from their best alternative use is called _____

Accepted Answer

Economic profit represents the true profitability of a firm, calculated by subtracting the explicit (out-of-pocket) and implicit (opportunity) costs from total revenue. It is a better measure of a firm's performance than just total revenue.

Quiz 7: Production and Cost in the Firm

Accounting profit is _____

Harvey develops gaming apps from home instead of working as an engineer and earning $50,000 a year.He has invested $20,000 to upgrade to the hardware that he needs and estimates his expenses at $17,000 a year.If downloads generate $45,000 in revenue during the first year,then his business _____

Harvey develops gaming apps from home instead of working as an engineer and earning $50,000 a year.He has invested $20,000 to upgrade to the hardware that he needs and estimates his expenses at $17,000 a year.Downloads generated $130,000 in revenue during the first year.What are his explicit costs?

Which of the following would be shown on a firm's accounting statement?

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?

Economic profit is defined as _____

Normal profit is defined as _____

A firm's accounting profit is equal to _____

Harvey develops gaming apps from home instead of working as an engineer and earning $50,000 a year.He has invested $20,000 to upgrade to the hardware that he needs and estimates his expenses at $17,000 a year.Downloads generated $130,000 in revenue during the first year.What are his implicit costs?

Economic profit is defined as _____

Opportunity cost usually _____

A firm's economic profit is equal to _____

Harvey develops gaming apps from home instead of working as an engineer and earning $50,000 a year.He has invested $20,000 to upgrade to the hardware that he needs and estimates his expenses at $17,000 a year.If downloads generate $50,000 in revenue during the first year,then his business _____

Economic profit is defined as _____

Harvey develops gaming apps from home instead of working as an engineer and earning $50,000 a year.He has invested $20,000 to upgrade to the hardware that he needs and estimates his expenses at $17,000 a year.Downloads generated $130,000 in revenue during the first year.What is his economic profit?

The difference between a firm's total revenue and what must be paid to attract resources from their best alternative use is called _____