ECONOMICS (CBSE/UGC NET)

Previous
Next

ECONOMICS

PROFIT

Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
Tom was working as a delivery driver for the local pizza store. In 2014, he made approximately $20, 000 for the entire year delivering pizza and performing other jobs around the pizza store.In 2015, he decided to quit his pizza job to open his own bike rental store on the local bike trails. In 2015, Tom brought in a total revenue of $50, 000 while he had total explicit costs of $30, 000. These costs included both fixed and variable costs such as wages for his workers, leasing the building, buying bikes, and buying other resources needed for maintaining the bikes.In 2015 Tom achieved
A
an economic profit of $50, 000
B
an accounting loss of $30, 000
C
zero accounting profit
D
an economic profit of $20, 000
E
an accounting profit of $20, 000
Explanation: 

Detailed explanation-1: -A profit-maximizing firm chooses the quantity of labor so that the value of the marginal product (P H MPL) is equal to the wage (W): P * MPL = W. Divide both sides by MPL to get: P = W / MPL.

Detailed explanation-2: -The profit maximization formula depends on profit = Total revenue – Total cost. Therefore, a firm maximizes profit when MR = MC, which is the first order, and the second order depends on the first order. This concept differs from wealth maximization in terms of duration for earning profit and the firm’s goals.

Detailed explanation-3: -Accounting profit is the total revenues minus explicit costs, including depreciation. Economic profit is total revenues minus total costs-explicit plus implicit costs. Explicit costs are out-of-pocket costs for a firm-for example, payments for wages and salaries, rent, or materials.

Detailed explanation-4: -The level of output that maximizes a monopoly’s profit is when the marginal cost equals the marginal revenue. In a competitive market, on the other hand, competitors will tend to drive down the marginal cost and erode profitability.

There is 1 question to complete.
Previous
Next