ESSENTIALS OF ECONOMICS
11th Edition
ISBN: 9781260225334
Author: SCHILLER
Publisher: RENT MCG
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Question
Chapter 5, Problem 6QFD
To determine
The possibility for a company to suffer an economic loss even when it is earning accounting profit. Also to further determine what would happen to such a company.
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what is the distinction between economic and accounting profit
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Similar questions
- Your aunt is thinking about opening a hardware store. She estimates that it would cost $500,000 per year to rent the location and buy the stock. In addition, she would have to quit her $50,000 per year job as an accountant. If your aunt thought she could sell $510,000 worth of merchandise in a year, what is your aunt’s accounting profit?arrow_forwardMany firms in the United States file for bankruptcy every year, yet they still continue operating. Why would they do this instead of completely shutting down?arrow_forwardWhy should a firm shut down immediately when it can no longer cover their variable.arrow_forward
- Show the effect of a 25% profit tax on the accounting profit of all firms in a competitive industry. Consider all time periods.arrow_forwardSuppose you run a small business in your building and you act also as a manager of your business. If you do not pay yourself a salary and rent of your building what effect will this practice have on the calculation of the firm’s accounting profit? Economic profit? Explain.arrow_forwardWhat are production fixed assets?arrow_forward
- Tim is thinking of opening a garment store. He estimates that it would cost $270000 per year to rent the location and buy the merchandise. In addition, he would have to quit his $63000 per year day job. Tim estimates he can sell $315600 worth of garments in a year. a. What will be the accounting profit and economic profit for Tim? b. If you are an economist, should you suggest opening the store? Why?arrow_forwardExplain some of the different factors that would affect a firm’s profitability and what might make a firm’s profits particularly volatile.arrow_forwardMany firms in the United States file for bankruptcy every year, yet they still continue operating. Why would they do this instead of completely shutting down? Think of recent examples.arrow_forward
- Danielle decides to withdraw her savings of $70,000 and invest in starting her own clothing business. She normally earns $3,000 in interest from her savings. If Danielle earned an accounting profit of $60,000 last year, what was her economic profit?arrow_forwardConsider the concepts of accounting profit and economic profit. Suppose you are a consultant and you are meeting with a business owner who is trying to decide whether to keep that business open or open a business in a different industry. Discuss the differences between accounting profit and economic profit and why it should matters in this circumstance.arrow_forward
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