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a) Explain why economic profit provides a better measure of profit than accounting profit.

b) In measuring economic profit:

1) How do you deal with a one-time event? 

2) How do you deal with money provided by relatives to get the business started? 

3) How do you handle off-balance-sheet expenses - that is, expenses that are incurred by the firm but are not measured as part of the firm's balance sheet?

 

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Joshua Stredder
Joshua StredderLv10
28 Sep 2019

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Related questions

5. Economic profit is equal to 
 
a. total revenue minus the explicit cost of producing goods and services.
b. total revenue minus the opportunity cost of producing goods and services.
c. total revenue minus the accounting cost of producing goods and services.
d. average revenue minus the average cost of producing the last unit of a good or service.
 
6. Accounting profit is equal to 
 
a. marginal revenue minus marginal cost.
b. total revenue minus the explicit cost of producing goods and services.
c. total revenue minus the opportunity cost of producing goods and services.
d. average revenue minus the average cost of producing the last unit of a good or service.
 
7. Economic profit
 
a. will never exceed the accounting profit.
b. is most often equal to accounting profit
c. is always at least as large as accounting profit.
d. is a less complete measure of profitability than accounting profit
 
8. Which of the following expressions is correct?
 
a. accounting profit = total revenue - explicit costs
b. economic profit = total revenue - implicit costs
c. economic profit = total revenue - explicit costs
d. Both a and b are correct
 
Scenario 13-2:
 
Zach took $400,000 out of the bank and used it to start his new cookie business. The bank account pays 3% interest per year. During the first year of his business, Zach sold 6,000 boxes of cookies for $2.50. Also during the first year, the cookie business incurred costs that required outlays of money amounting to $9,000.
 
9. Zach's accounting profit for the year was
 
a. $-494,000
b. $-6,000
c. $6,000
d. $12,000
 
10. Zach's economic profit for the year was
a. S-506,000
b· $-6,000
c. $3,000
d. $6,000.
 
Scenario 14-1:
 
As part of an estate settlement, Mary received $1 million. She decided to use the money to purchase a small business in Anywhere, USA. If Mary would have invested the $1 million in a risk-free bond fund she could have made $100,000 each year. She also quit her job with Lucky.Com Inc. to devote all of her time to her new business; her salary at Lucky.Com Inc. was $75,000 per 
 
11. At the end of the first year of operating her new business, Mary's accountant reported an accounting profit of $150,000. What was Mary's economic profit?
 
a. $25,000 loss
b.$50,000 loss
c. $25,000 profit
d. $150,000 profit

 

 

Managers of a monopoly under rate of return regulation have an incentive to


a. underestimate the firm's costs.

b. exaggerate the firm's costs.

c. minimize the monopoly's deadweight loss.

d. exaggerate the firm's profit.

e. earn zero economic profit.


Which of the following is correct?
i. All linear demand curves have a constant slope and a constant price elasticity of demand.
ii. The price elasticity of demand changes while moving along a downward-sloping linear demand curve.
iii. The magnitude of the slope of all linear demand curves is equal to the price elasticity of demand.


a. iii only.

b. ii only.

c. i, ii, and iii.

d. i only.

e. i and ii.


________ natural monopolies is a commonly used, potential solution to the problems presented by natural monopolies.


a. Giving incentives to firms to become

b. Regulating

c. Breaking up firms that are

d. Outlawing price discrimination by

e. Refusing to grant patents to


In the short run, a perfectly competitive firm


a. must suffer an economic loss.

b. must earn an economic profit.

c. might make an economic profit, incur an economic loss, or make a normal profit.

d. must make either an economic profit or a normal profit.

e. must earn a normal profit.

To determine if a market is an oligopoly, we need to determine if


a. cartels are legal in their market.

b. the firms are so few that they recognize their mutual interdependencies.

c. the firms make identical or differentiated products.

d. there are many firms in the market.

e. the market's HHI is less than 900.


Increasing marginal returns to labor


a. occur only when there are increasing marginal returns to capital.

b. are the result of specialization and division of labor in the production process.

c. describe the portion of a total product curve where the marginal product is negative.

d. mean that two workers produce less than twice the output of one worker.

e. occur when a particularly efficient worker is employed.

The return to entrepreneurship, which is what the firm's owner could earn running another business, is known as


a. entrepreneur's profit.

b. economic profit.

c. excessive profit.

d. accounting profit.

normal profit.

Both price supports and a price floor can


a. decrease the price below the equilibrium price.

b. increase consumer surplus.

c. create a deadweight loss.

d. decrease output below the equilibrium quantity.

e. have no effect on producer surplus.

In economics, cost is ________, and benefit is ________.

a. the amount of money that you pay for something; the amount of money that someone else is willing to pay you
b. what you must give up to get something; what you are willing to give up to get it
c. the amount of money that you pay on the margin; the amount of money that you receive on the margin
d. what you are willing to give up to get it; what you must give up to get something
e. what you are willing to pay on the margin; what the government pays you when you are unemployed or retired

If a substitute good is easy to find, then demand for a good is


a. unit elastic.

b. perfectly inelastic.

c. elastic.

d. inelastic.

e. Substitutes don't have any effect on elasticity.







Please help with answering the questions below.

1. What is your understanding of the concept of Profit? How do businesses make money? This is called the Business Model. Provide a specific example for an existing company that sells products like PepsiCo., and for one that provides services, like Facebook.

2. Identify the External environment effects that Impact Businesses. Provide examples for each. Example: The Political/Legal Environment Impacts the Tobacco Industry by setting rules on age limits for customers, and for advertising on television or in print.

3. Define Supply and Demand. Explain how they are balanced by adjusting prices or quantities. Give an example of a product that has had a shortage that caused its price to increase. What products do you buy regardless of price? These products are inelastic.

4. List the 4 Degrees of Competition and provide examples of industries for each. Can you identify a monopoly?

5. List 5 Economic Indicators and describe what they measure. Also, provide the latest value for each. You can find this information on the Internet. See Useful Links below.

 

 

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