Understanding Economic Profit

Which of the following best defines explicit costs?

• The value of the next best alternative

• Payments made to non-owners of the firm for resources

• The cost of resources provided by the owner

• The difference between total revenue and total cost

What is the formula for accounting profit?

• Total Revenue - Explicit Costs

• Total Revenue - Total Costs

• Total Revenue - (Explicit Costs + Implicit Costs)

• Total Revenue - Opportunity Cost

Economic profit is calculated as:

• Total Revenue - Explicit Costs

• Total Revenue - Total Costs

• Total Revenue - Implicit Costs

• Total Revenue - (Explicit Costs + Implicit Costs)

Which term describes the opportunity cost of using resources already owned by the firm?

• Accounting Cost

• Explicit Cost

• Implicit Cost

• Marginal Cost

A firm earns zero economic profit when:

• Total Revenue = Explicit Costs

• Total Revenue = Implicit Costs

• Total Revenue = Total Costs (Explicit + Implicit)

• Total Revenue > Implicit Costs

What is the primary difference between accounting profit and economic profit?

• Economic profit excludes implicit costs

• Accounting profit includes opportunity costs

• Economic profit includes implicit costs

• Accounting profit equals total revenue

What is the opportunity cost of capital?

• The explicit cost of using borrowed funds

• The rate of return that could have been earned elsewhere

• The sum of all variable costs

• The interest rate on a bank loan

If a firm incurs $1 million in explicit costs and $0.5 million in implicit costs while earning $1.6 million in total revenue, what is its economic profit?

• $1.1 million

• $0.6 million

• $0.1 million

• $0

A firm's normal profit is:

• Equal to its explicit costs

• The minimum profit needed to keep the firm operating

• The maximum profit possible in a market

• A measure of accounting profit

What type of cost does a firm incur if it uses its building for production instead of renting it out?

• Explicit Cost

• Implicit Cost

• Fixed Cost

• Variable Cost