Practice Questions
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In the context of evaluating a business's profitability, which of the following best describes the role of implicit costs in calculating economic profit?
Implicit costs are the costs of what you give up when you choose one option over another. Other options are incorrect because This answer suggests tha...
Which of the following statements best differentiates accounting profit from economic profit?
Accounting profit looks at money spent, like bills and salaries. Other options are incorrect because Some people think economic profit is always more;...
In the context of a company's financial performance, how do total costs affect the comparison between accounting profit and economic profit in the short run versus the long run?
In the short run, a company can show profits on its accounting books. Other options are incorrect because This answer suggests that economic profit is...
Which of the following statements accurately describes the difference between accounting profit and economic profit in terms of explicit costs and financial health?
Accounting profit looks at money spent directly, called explicit costs. Other options are incorrect because This option confuses the types of costs; T...
In a competitive market, how do implicit costs influence resource allocation and the determination of economic profit versus accounting profit?
Economic profit looks at both explicit costs (actual money spent) and implicit costs (what you give up). Other options are incorrect because This answ...
What is the primary difference between accounting profit and economic profit?
Economic profit takes into account all costs, including implicit costs. Other options are incorrect because This option mixes up the definitions; This...
What is the primary difference between accounting profit and economic profit?
Economic profit looks at all costs, including what you give up to make money. Other options are incorrect because Some people think accounting profit ...
What is the primary difference between accounting profit and economic profit in terms of opportunity cost?
Economic profit takes into account opportunity cost, which is what you give up to make a choice. Other options are incorrect because This answer sugge...
Raheem is considering starting a new business selling handcrafted furniture. He calculates that his accounting profit would be $50,000 after deducting explicit costs, but his economic profit is only $20,000 after considering the salary he would forgo from his current job. Which category does Raheem's situation best illustrate?
Economic profit shows how much money Raheem really makes after considering all costs. Other options are incorrect because Accounting profit only looks...
When evaluating a business's performance, it's important to distinguish between accounting profit and ______ profit, which includes both explicit and implicit costs.
Economic profit looks at all costs, including what you give up to run the business. Other options are incorrect because Marginal profit focuses on the...
If Raheem evaluates his business decision using accounting profit, which of the following costs is he likely to overlook?
When Raheem looks at accounting profit, he focuses on money coming in and going out. Other options are incorrect because Some might think all costs ar...
Raheem is considering starting a new business selling handmade furniture. He estimates that his total revenue would be $50,000 per year. However, to start this business, he would have to quit his current job where he earns $40,000 annually. Additionally, he expects to incur explicit costs of $30,000 for materials and labor. Based on this information, what can Raheem conclude about his potential economic profit if he proceeds with the business?
Raheem's economic profit is negative. Other options are incorrect because This answer suggests he makes a profit, but it ignores his lost salary; This...
Accounting profit : Explicit costs :: Economic profit : ?
Economic profit looks at both explicit and implicit costs. Other options are incorrect because Fixed costs are expenses that do not change, like rent;...
Order the steps in analyzing a business's profitability based on the concepts of accounting profit and economic profit:
First, you need to find out how much money the business made. Other options are incorrect because Some might think you should subtract costs right awa...
If a business has high accounting profits but low economic profits, what is the most likely underlying cause of this situation?
Economic profit looks at both explicit costs and implicit costs. Other options are incorrect because This option suggests that high explicit costs are...
If Raheem earns $50,000 at his current job and his business generates $70,000 in revenue with $40,000 in explicit costs, what is his economic profit?
Economic profit is what you earn after subtracting all costs, including opportunity costs. Other options are incorrect because This answer might come ...
Which of the following statements accurately describe the differences between accounting profit and economic profit? Select all that apply.
Other options are incorrect because This statement is wrong because accounting profit only includes explicit costs, which are direct expenses; This st...
Master Accounting vs. Economic Profit
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