ECON 1050 Lecture : Organizing Production

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2 Apr 2012

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Accountants: measure firms" profit to ensure firms pay correct tax and show investors how funds are used: profit = total revenue cost. Internal revenue service rules used to calculate firms" depreciation cost. Economic profit economists: measure a firm"s profit to predict the firm"s decisions; goal of these decisions is to maximize economic profit: economic profit: total revenue - total cost total cost = opportunity cost of production. Economic depreciation: change in the market value of capital over a given period interest foregone: return on the funds used to acquire the capital: resources supplied by the firm"s owner. Owner might suppy both entrepreneurship: return on entrepreneurship is profit. Normal profit: profit expected to receive on average. Owner might supply labour without taking a wage: oc = wage income forgone by not taking the best alternative job. Firm constraints technology: any method of producing a good or service: technology constraints, advances over time, causes costs and limits profits on additional output.

Related Questions

The difference between zero accounting profit and zero economic profit is that:

(a) economists include opportunity cost in zero economic profit, while accountants do not include opportunity cost in zero accounting profit.

(b) economists do not include opportunity cost in zero economic profit, while accountants do include opportunity cost in zero accounting profit.

(c) economists include opportunity cost in zero accounting profit, while accountants do not include opportunity cost in zero economic profit.

(d) economists do not include opportunity cost in zero accounting profit, while accountants do include opportunity cost in zero economic profit.

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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

10. Zach's economic profit for the year was

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?

15) Economic profit equals total revenue minus A) the cost of resources bought in the market. B) the implicit rental rate. C) the cost of resources owned by the firm. D) the cost of resources supplied by the owner. E) the opportunity cost of production.

ECON 1050 Lecture : Organizing Production

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