ECON MICRO
5th Edition
ISBN: 9781337000536
Author: William A. McEachern
Publisher: Cengage Learning
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Chapter 7, Problem 1.3P
To determine
To Determine: The accounting profit or loss and the economic profit or loss is to be determined in each situation.
Concept Introduction: Accounting Profit= Total Revenue −Explicit Cost.
Economic Profit = Accounting profit- Implicit Cost.
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(a) explain the term explicit and implicit costs.give examples.
(b) what is economic profit as compared to financial profit? to compute economic profits,which costs are used?Give example.
5) A firm that has positive accounting profit does not necessarily have positive economic profit. True or false? Explain.6) Assume that marginal cost in production is greater than average variable costs. Can you determine whether average variable cost is decreasing or increasing? Explain.
5d What is the relationship between accounting profit and economic profit? Which is relevant for a firm’s decision to continue production and why? Give examples as to what may cause a divergence between accounting and economic profit
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- 1.Joe quits his computer programming job, where he was earning a salary of $50,000 per year, to start his own computer software business in a building that he owns and was previously renting out for $24,000 per year. In his first year of business he has the following expenses: salary paid to himself, $40,000; rent, $0; other expenses, $25,000. Find the accounting cost and the economic cost associated with Joe’s computer software business.arrow_forward28) If average cost is increasing over a range , it should be the case that a) marginal cost is smaller than average cost over that range b) marginal cost is equal to average cost over that range c) marginal cost intersects the average cost over that range d) marginal cost is greater than the average costarrow_forward1. What is the formula to calculate profits? 2. Define Explicit and Implicit Costs. 3. Define Economic Profit and Accounting Profit. 4. Define Production Function, Marginal Product, and Diminishing Marginal Product. 5. Define Fixed Costs and Variable Costs. 5. Provide the formula/calculation for the following costs: Average Total Cost, Average Fixed Cost, Average Variable Cost, Marginal Cost. 6. Define Minimum Average Cost and Efficient Scale. 7. Define Economies of Scale, Diseconomies of Scale, Constant returns to scale.arrow_forward
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