Asked by
Kristina Riley
on Nov 25, 2024
Verified
Normal profits are
A) the profits reported by accountants on a firm's annual financial statement.
B) identical to economic profits.
C) determined by subtracting total costs from total revenues.
D) considered an implicit cost by economists.
Normal Profits
The level of profit that is necessary to cover the costs of a firm, including the opportunity costs of capital, ensuring the firm remains in business.
Implicit Cost
The opportunity cost equal to what a firm must give up in order to use resources it already owns, without paying rent or purchasing them.
Economic Profits
The difference between a firm's total revenue and its total costs, including both explicit and implicit costs.
- Discriminate between the concepts of economic profits, accounting profits, and normal profits, and determine their values using explicit and implicit costs.
- Understand the critical role of zero economic profits and what it signifies for a firm's performance in comparison to alternative choices.
Verified Answer
HM
Learning Objectives
- Discriminate between the concepts of economic profits, accounting profits, and normal profits, and determine their values using explicit and implicit costs.
- Understand the critical role of zero economic profits and what it signifies for a firm's performance in comparison to alternative choices.