Economic Profit

Tom was working as a delivery driver for the local pizza store. In 2014, he made approximately $20,000 for the entire year delivering pizza and performing other jobs around the pizza store.

In 2015, he decided to quit his pizza job to open his own bike rental store on the local bike trails. In 2015, Tom brought in a total revenue of $50,000 while he had total explicit costs of $30,000. These costs included both fixed and variable costs such as wages for his workers, leasing the building, buying bikes, and buying other resources needed for maintaining the bikes.

In 2015 Tom achieved

• an economic profit of $50,000

• an accounting loss of $30,000

• zero accounting profit

• an economic profit of $20,000

• an accounting profit of $20,000

A star athlete receives an offer of $100 million from a major shoe company for a contract to exclusively endorse its products and also receives the same offer from a competing company. If he accepts the contract offer from the first company, an economist would say that based on this information, the contract earns him

• an economic profit of $100 million because he incurred no costs.

• an economic profit of $100 million because his explicit costs are zero.

• a normal profit because his opportunity cost is equal to the payment from the contract he accepts.

• an economic loss because he is unable to accept both contracts.

• an accounting loss because he is unable to accept both contracts.

The incentive to improve material well-being by seeking to gain from economic activities is called

• legal equality

• marginal benefit

• open opportunity

• profit motive

A company has total revenue of $200,000 and explicit costs of $150,000. If the opportunity cost of the owner's time is $30,000, what is the economic profit?

• A) $50,000

• B) $20,000

• C) $30,000

• D) $0

If a business has an accounting profit of $40,000 and implicit costs of $10,000, what is the economic profit?

• A) $50,000

• B) $30,000

• C) $40,000

• D) $10,000

Which of the following best describes economic profit?

• A) Total revenue minus explicit costs

• B) Total revenue minus implicit costs

• C) Total revenue minus both explicit and implicit costs

• D) Total revenue minus fixed costs

A firm has explicit costs of $120,000, implicit costs of $30,000, and total revenue of $180,000. What is the economic profit?

• A) $30,000

• B) $60,000

• C) $90,000

• D) $0

If a company has zero economic profit, what does this imply about its accounting profit?

• A) It is negative

• B) It is zero

• C) It is positive and equal to implicit costs

• D) It is positive and greater than implicit costs

What is the opportunity cost of capital if a business owner invests $100,000 in their business instead of a bank offering 5% interest?

• A) $5,000

• B) $10,000

• C) $15,000

• D) $20,000

A business owner decides to close their store and rent out the space for $2,000 a month. What is the opportunity cost of keeping the store open?

• A) $2,000

• B) $24,000

• C) $12,000

• D) $0