Asked by jessica Musgrave on Jun 08, 2024
Verified
Suppose a firm sells its product at a price lower than the per-unit implicit costs of producing it. Which of the following statements is definitely true?
A) The firm will earn positive accounting and economic profits.
B) The firm will face accounting and economic losses.
C) The firm will face an accounting loss but earn positive economic profits.
D) The firm may earn positive accounting profits but will face economic losses.
Implicit Costs
The opportunity costs of using resources owned by the firm for its current purposes rather than the next best alternative uses.
Accounting Profits
Accounting profits refer to the net earnings of a company as calculated by subtracting total expenses from total revenues, using standard accounting principles.
Economic Profits
The difference between total revenues and total costs, including both explicit and implicit costs, indicating the profitability of a company beyond basic accounting measures.
- Contrast economic profits, accounting profits, and normal profits, and assess them by means of explicit and implicit costs.
Verified Answer
HW
Haaris WastiJun 14, 2024
Final Answer :
D
Explanation :
Implicit costs are non-monetary costs, such as the opportunity cost of the owner's capital. If a firm sells its product at a price lower than its per-unit implicit costs, it means that the firm is not covering these non-monetary costs, leading to economic losses. However, accounting profits, which consider only explicit (monetary) costs and revenues, might still be positive if the price covers these explicit costs.
Learning Objectives
- Contrast economic profits, accounting profits, and normal profits, and assess them by means of explicit and implicit costs.