If General Motors is earning only a normal profit,
a. it is making economic profit
b. it is breaking even
c. it is suffering an economic loss
d. it is covering only explicit costs
e. it is covering only implicit costs
QUESTION 2Suppose a lawyer leaves his 50,000-a-year job and starts his own firm breeding pit bulls. In the first year, his accounting profit is 70,000 . The lawyer finances his new business with 100,000 from his savings account, which had earned 10 percent interest. His economic profit is
a. 10,000
b. 60,000
c. 70,000
d. -80,000
e. -90,000
QUESTION 3Suppose Bob leaves his 50,000-a-year job as a financial advisor to P.E.T.S. and starts his own business selling spot remover for Dalmatians. In the first year his accounting profit is 70,000 . Based on this level of success, Bob should
a. return to his old job because his economic profit is negative
b. return to his old job because his economic profit is smaller than his accounting profit
c. return to his old job because his economic profit is less than his old salary
d. stay with his new firm because his economic profit is positive
e. stay with his new firm because accounting profit is positive
QUESTION 4Suppose a soccer coach has been making 25,000 per year but gives up his coaching job in order to make lace doilies. If his revenue from the sale of these doilies is 50,000 and his materials cost 20,000 . then his economic profit is
a. 5,000
b. 25,000
c. 30,000
d. 50,000
e. 80,000
QUESTION 5Normal profit is defined as
a. accounting profit
b. economic profit
c. profit necessary to ensure that opportunity costs are covered
d. accounting profit minus economic profit
e. economic profit minus accounting profit
QUESTION 6Suppose Ben buys out Jerry's ownership in the firm but retains him as a salaried employee. If so,
a. economic profit increases
b. economic profit decreases
c. there is no change in economic profit
d. there is no change in accounting profit
e. accounting profit increases
QUESTION 7Accounting profit is
a. always less than economic profit
b. never less than economic profit
c. equal to economic profit if a normal profit is earned
d. less than economic profit only when implicit costs are greater than explicit costs
e. greater than economic profit only when implicit costs are greater than explicit costs
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