Frequent Exam Questions with Answers
Profits
Chapter 11 ― Question 2
Which of the following is true
- economic profit minus accounting profit equals explicit costs
- economic profit is below accounting profit
- economic profit is higher than accounting profit
- accounting profit is economic profit minus opportunity costs
*B. Answer C is nonsense. Economic profit is lower than accounting profit. Answers A and D are traps.
Remember that accounting profit is revenue minus explicit cost; economic profit is revenue minus all opportunity cost or minus implicit and explicit costs, which is the same.
Chapter 11 ― Question 4
If total revenues cover explicit costs, but not implicit costs
- there are accounting and economic profits
- there are accounting profits only
- there are losses
- there are neither economic nor accounting profits
*D. Accounting profits are profits that exceed - rather than cover - explicit costs.
Chapter 11 ― Question 5
A firm has total revenues of $1m. Its total expenses are $700,000. The firm's owner earned a salary of $100,000 in his previous job.
1) What is the firm's economic profit?
2) What is its accounting profit?
*1) Economic profit = $200,000.
*2) Accounting profit = $300,000.
Remember that economic profits are profits above explicit and implicit costs.
Chapter 11 ― Question 5
A firm has total revenues of $1m. Its total expenses are $700,000. The firm's owner earned a salary of $100,000 in his previous job.
1) What is the firm's economic profit?
2) What is its accounting profit?
*1) Economic profit = $200,000.
*2) Accounting profit = $300,000.
Remember that economic profits are profits above explicit and implicit costs.
Chapter 12 ― Question 14
What is the difference between profit and producer surplus?
* Profit is Price minus ATC. Producer surplus is Price minus MC.
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