Multiple Choice
The key assumption that accompanies the use of numbers for measuring utility is that:
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0. Basic Principles of Economics
Positive and Normative Analysis
Multiple Choice
Suppose that for a particular business there are no implicit costs. Then, which of the following statements is true?
A
Accounting profit is greater than economic profit.
B
Economic profit is always zero.
C
Economic profit equals accounting profit.
D
Economic profit is less than accounting profit.
Verified step by step guidance1
Step 1: Understand the difference between accounting profit and economic profit. Accounting profit is total revenue minus explicit costs, while economic profit is total revenue minus both explicit and implicit costs.
Step 2: Note that the problem states there are no implicit costs for the business. This means implicit costs are zero.
Step 3: Since economic profit subtracts both explicit and implicit costs, and implicit costs are zero, economic profit simplifies to total revenue minus explicit costs only.
Step 4: Recognize that accounting profit also equals total revenue minus explicit costs, so with no implicit costs, economic profit and accounting profit are the same.
Step 5: Conclude that under the condition of no implicit costs, economic profit equals accounting profit.
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