ECONOMICS
PROFIT
Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Her accounting costs are larger than her economic costs
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Her implicit costs are less than her accounting costs
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Her accounting profits are greater than her economic costs
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Her accounting profits are less than her implicit costs
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Detailed explanation-1: -profit is also known as zero economic profit. When the total revenue earned by a firm is less than the total cost of production, the firm faces a loss.
Detailed explanation-2: -Examples of implicit costs include the loss of interest income on funds and the depreciation of machinery for a capital project. They may also be intangible costs that are not easily accounted for, including when an owner allocates time toward the maintenance of a company, rather than using those hours elsewhere.
Detailed explanation-3: -A firm is said to be enjoying economies of scale when its long run average costs (LRAC) decline with increasing production.
Detailed explanation-4: -Fixed costs are expenses that remain the same regardless of production output. Whether a firm makes sales or not, it must pay its fixed costs, as these costs are independent of output.