5. Economic profit is equal to
a. total revenue minus the explicit cost of producing goods and services.
b. total revenue minus the opportunity cost of producing goods and services.
c. total revenue minus the accounting cost of producing goods and services.
d. average revenue minus the average cost of producing the last unit of a good or service.
6. Accounting profit is equal to
a. marginal revenue minus marginal cost.
b. total revenue minus the explicit cost of producing goods and services.
c. total revenue minus the opportunity cost of producing goods and services.
d. average revenue minus the average cost of producing the last unit of a good or service.
7. Economic profit
a. will never exceed the accounting profit.
b. is most often equal to accounting profit
c. is always at least as large as accounting profit.
d. is a less complete measure of profitability than accounting profit
8. Which of the following expressions is correct?
a. accounting profit = total revenue - explicit costs
b. economic profit = total revenue - implicit costs
c. economic profit = total revenue - explicit costs
d. Both a and b are correct
Scenario 13-2:
Zach took $400,000 out of the bank and used it to start his new cookie business. The bank account pays 3% interest per year. During the first year of his business, Zach sold 6,000 boxes of cookies for $2.50. Also during the first year, the cookie business incurred costs that required outlays of money amounting to $9,000.
9. Zach's accounting profit for the year was
a. $-494,000
b. $-6,000
c. $6,000
d. $12,000
10. Zach's economic profit for the year was
a. S-506,000
b· $-6,000
c. $3,000
d. $6,000.
Scenario 14-1:
As part of an estate settlement, Mary received $1 million. She decided to use the money to purchase a small business in Anywhere, USA. If Mary would have invested the $1 million in a risk-free bond fund she could have made $100,000 each year. She also quit her job with Lucky.Com Inc. to devote all of her time to her new business; her salary at Lucky.Com Inc. was $75,000 per
11. At the end of the first year of operating her new business, Mary's accountant reported an accounting profit of $150,000. What was Mary's economic profit?
a. $25,000 loss
b.$50,000 loss
c. $25,000 profit
d. $150,000 profit
