Why is it not a contradiction to say that a firm is simultaneously earning an accounting profit but suffering an economic loss?
What will be an ideal response?
Accounting profit is determined by taking total revenue and subtracting explicit costs only. Economic profit is determined by taking total revenue and subtracting all economic costs which include explicit and implicit costs. Therefore, this statement is not a contradiction.
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The new growth theory asserts that profits are
A) temporary, because the discoveries that lead to profits are eventually used by all. B) an illusion, since costs are never fully covered. C) permanent, because physical activities can be replicated. D) not an essential component determining whether the economy grows or not. E) permanent, because they are derived from discoveries.
What is adverse selection?
A) It refers to the situation in which one party to a transaction takes advantage of knowing more than the other party to the transaction. B) It refers to the actions people take after they have entered into a transaction that make the other party to the transaction worse off. C) It refers to the private, self-interested actions people that people pursue, which when taken collectively leads to a loss in economic surplus. D) It refers to the actions people take before they enter into a transaction so as to mislead the other party to the transaction.
Equivalent variation means
A. finding an equivalent change in income that puts a person on the same utility as a change in price would. B. finding equal tax rates that insure quantity demanded does not change. C. equalizing excess burden across all markets. D. moving the same distance in either direction from a starting point on an indifference curve.
Economic profit is most closely associated with:
A. the process of saving and investing. B. monopoly, innovation, and uninsurable risks. C. long-run competitive equilibrium. D. a static economy.