Can a firm's accounting profit be smaller than the economic profit? Assume that all costs are positive.
What will be an ideal response?
No. If all costs, implicit and explicit, are positive, then accounting profit will almost always be larger than economic profit because economic profit equals accounting profit minus implicit costs. Accounting profit equals economic profit if the firm incurs no implicit cost.
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Use the following diagram to answer the next question.
In the diagram, solid arrows reflect real flows and broken arrows are monetary flows. Flow (2) might represent
A. the provision of national defense by government. B. a government subsidy to farmers. C. welfare payments to low-income families. D. corporate income tax payments.
Contractionary policies are government policies that
A) decrease aggregate supply. B) increase aggregate supply. C) increase aggregate demand. D) decrease aggregate demand.
The perfectly competitive firm:
A) makes its profit-maximizing decision only on the basis of output. B) faces a downward-sloping demand function. C) can influence market price only in a downward direction. D) cannot earn any economic profits because it faces a horizontal demand curve.
A 45-degree line on a graph with expenditures, E, on the vertical axis and production, Y, on the horizontal axis, represents
A) the line of disequilibrium levels of income. B) all possible equilibrium levels of production and expenditures. C) some of the equilibrium levels of production and expenditures. D) None of the above.