Practice Questions
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What is economic profit, and how does it differ from accounting profit in relation to opportunity cost?
Economic profit looks at all costs, including what you give up to make a choice. Other options are incorrect because Some people think economic profit...
Which of the following best describes how implicit costs influence resource allocation in the context of economic profit?
Implicit costs are the hidden costs of using resources. Other options are incorrect because Some people think implicit costs don't matter in profit ca...
Which of the following statements best describes the relationship between economic profit and accounting profit, and their effects on market behavior?
Economic profit takes into account opportunity costs, which are the benefits you miss out on when making a choice. Other options are incorrect because...
Which of the following scenarios best illustrates the concept of economic profit considering explicit costs in a real-world business decision-making context?
This choice shows a farmer making a smart decision. Other options are incorrect because This example focuses on new equipment costs but misses the big...
Which of the following scenarios best illustrates the implications of negative economic profit when considering opportunity costs and explicit costs?
When a business has high costs but makes no money, it shows negative economic profit. Other options are incorrect because This option suggests that br...
What is the definition of economic profit?
Economic profit is what you get when you subtract all costs from your total earnings. Other options are incorrect because This answer only looks at mo...
What is the primary difference between accounting profit and economic profit?
Economic profit looks at all costs, including both money spent and opportunities lost. Other options are incorrect because This answer mixes up the de...
What is economic profit, and how does it differ from accounting profit in relation to opportunity cost?
Economic profit looks at all costs, including what you give up to make a choice. Other options are incorrect because Some might think economic profit ...
Which of the following statements about economic profit are true? (Select all that apply)
Other options are incorrect because Some people think economic profit is always more than accounting profit; Many believe economic profit includes all...
Economic profit : Total revenue - Total economic costs :: Accounting profit : ?
Accounting profit is found by subtracting explicit costs from total revenue. Other options are incorrect because This answer confuses implicit costs w...
If a company reports high accounting profit but low economic profit, what does this imply about its implicit costs?
High implicit costs mean the company is giving up a lot of value. Other options are incorrect because This suggests that implicit costs don't matter; ...
A local coffee shop has total revenues of $200,000 in a year. It has explicit costs of $150,000 (including rent, salaries, and supplies) and implicit costs (including the owner's foregone salary of $50,000) associated with running the business. How should the owner interpret the economic profit of the coffee shop in relation to their business decisions?
The coffee shop has total revenues of $200,000 and total costs of $200,000 (explicit plus implicit). Other options are incorrect because This answer s...
Economic profit is always less than or equal to accounting profit due to the inclusion of both explicit and implicit costs in its calculation.
Economic profit considers all costs, including hidden ones. Other options are incorrect because This suggests that economic profit can be greater than...
A bakery generates $100,000 in revenue. It incurs explicit costs of $70,000 and implicit costs of $20,000. How would you classify the bakery's profit?
To find economic profit, subtract all costs from revenue. Other options are incorrect because This answer mistakenly only subtracts explicit costs; Th...
Economic profit is calculated as total revenue minus total ____, which includes both explicit and implicit costs.
Economic profit looks at all costs, not just cash spent. Other options are incorrect because Some might think accounting costs cover everything; Fixed...
Arrange the following steps in the correct order to understand the concept of economic profit: A) Calculate total revenue, B) Identify explicit costs, C) Deduct total economic costs (explicit + implicit) from total revenue, D) Determine economic profit.
First, you need to find out how much money you made, which is total revenue. Other options are incorrect because This option starts with identifying c...
If a firm is experiencing economic profit, which of the following is the most likely underlying cause?
Economic profit happens when a firm makes more money than it needs to cover all its costs. Other options are incorrect because This answer suggests th...
In evaluating a new business venture, why is economic profit a more relevant measure than accounting profit for decision-making?
Economic profit shows the real cost of doing business. Other options are incorrect because This answer suggests that economic profit ignores costs, wh...
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