Principles of Microeconomics California Edition 2nd Edition
2nd Edition
ISBN: 9780393622089
Author: Dirk Mateer, Lee Coppock
Publisher: W. W. Norton
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Question
Chapter 8, Problem 2QR
To determine
Describe the reason why the economic profit is a better measure of profitability than accounting profit.
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What is the difference between Economic Profit and Accounting profit?
Use your own example to clearly differentiate between an "accounting profit" and
an "economic profit".
Tim is thinking of opening a garment store. He estimates that it would cost $270000 per
year to rent the location and buy the merchandise. In addition, he would have to quit his
$63000 per year day job. Tim estimates he can sell $315600 worth of garments in a year.
a. What will be the accounting profit and economic profit for Tim?
b. If you are an economist, should you suggest opening the store? Why?
Chapter 8 Solutions
Principles of Microeconomics California Edition 2nd Edition
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Similar questions
- Why do economists believe that economic profit is the more accurate measure of a business success? Why is economic profit the superior method of determining a business success?arrow_forwardHow do you define 'profit'?arrow_forwardWith the help of an example explain the difference between accounting and economic profit. Building on your answer then explains why a perfectly competitive firm would operate in the long run even if it makes 0 profitarrow_forward
- Are there fixed costs in the long-run? Explain briefly.arrow_forwardConsider the following information about a business Rodriguez opened last year: price = $5; quantity sold = 15,233; implicit cost = $18,000; explicit cost = $33,000. What was Rodriguez's accounting profit and economic profit? Show your work.arrow_forwardUse the graph above to answer these questions: What is the profit-maximizing level of output? What is the economic profit? What is the per-unit amount of profit at the profit-maximizing level of output?arrow_forward
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