Essentials of Economics (MindTap Course List)
8th Edition
ISBN: 9781337091992
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Question
Chapter 12, Problem 1CQQ
To determine
Accounting profit and economic profit.
Expert Solution & Answer
Answer to Problem 1CQQ
Option ‘a’ is correct.
Explanation of Solution
Option (a):
When Xavier spend $10 for ingredients and sell $60 worth of lemonade, then the accounting profit will be
Option (b):
Xavier accounting profit is not $90, because an accounting profit is the total revenue minus the total explicit cost. Economic profit is not $50, because economic profit is total revenue minus implicit and explicit cost. Thus, option ‘b’ is incorrect.
Option (c):
When Xavier spends $10 for ingredients and sells $60 worth of lemonade, Xavier accounting profit will not be $10, because an accounting profit is the total revenue minus the total explicit cost. Economic profit is not $50, because economic profit is the total revenue minus implicit and explicit cost. Thus, option ‘c’ is incorrect.
Option (d):
When Xavier spend $10 for ingredients and sell $60 worth of lemonade, then the accounting profit will be (total revenue – total explicit cost)
Economics Concept Introduction
Concept introduction:
Accounting profit: Accounting profit refers to the total revenue minus total explicit cost
Economic profit: Economic profit refers to the total revenue minus implicit and explicit cost.
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Caroline opens a lemonade stand for two hours. She spends $15 for ingredients and sells $50 worth of lemonade. In the same two hours, she could have mowed the neighbor's yard and earned $10.
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Chapter 12 Solutions
Essentials of Economics (MindTap Course List)
Ch. 12.1 - Prob. 1QQCh. 12.2 - Prob. 2QQCh. 12.3 - Prob. 3QQCh. 12.4 - Prob. 4QQCh. 12 - Prob. 1CQQCh. 12 - Prob. 2CQQCh. 12 - Prob. 3CQQCh. 12 - Prob. 4CQQCh. 12 - Prob. 5CQQCh. 12 - Prob. 6CQQ
Ch. 12 - Prob. 1QRCh. 12 - Prob. 2QRCh. 12 - Prob. 3QRCh. 12 - Prob. 4QRCh. 12 - Prob. 5QRCh. 12 - Prob. 6QRCh. 12 - Prob. 7QRCh. 12 - Prob. 8QRCh. 12 - Prob. 1PACh. 12 - Prob. 2PACh. 12 - Prob. 3PACh. 12 - Prob. 4PACh. 12 - Prob. 5PACh. 12 - Prob. 6PACh. 12 - Prob. 7PACh. 12 - Prob. 8PACh. 12 - Prob. 9PACh. 12 - Prob. 10PA
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