To calculate the Economic Profit we must deduct which of the following cost from our total revenues?
Opportunity cost
Direct cost
Rent cost
Wage cost
Correct Answer :
A. Opportunity cost
Economic Profit ? Economic profit is the difference b/w the revenue received from the sale of an output and the opportunity cost of the inputs used. In calculating economic profit, opportunity costs are deducted from revenues earned. Opportunity costs also called implicit costs are the alternative returns foregone by using the chosen inputs. For example, say you invest Rs.100000 to start a business, and in that year you earn Rs.120000 in profits. Your accounting profit would be 120000 100000 = 20000. However, say that same year you could have earned an income of Rs.15000 had you been employed . Therefore, you have an economic profit of 120000-100000-18000 = 2000. Accounting Profit? A firms total earnings, calculated according to Generally Accepted Accounting Principles (GAAP), and includes the explicit costs of doing business, such as depreciation, interest and taxes. Accounting Profit = TR- Explicit Cost Economic Profit = TR- Explicit Cost- Implicit Cost Implicit Cost ?Any cost that result from using an asset instead of renting, selling, or lending it. It is also called opportunity cost. Explicit Cost ?Is a direct payment made to others in the course of running business, such as wage, rent and material cost etc. Economic profit is smaller than the accounting profit. Economists measure a firms economic profit while accountants measure the accounting profit.}
Related Questions
A firm can never produce in the middle area of input space, in case of:
Concave isoquant
Convex isoquant
Constant isoquant
None of the above
Technological Progress (Invention) can be defined as:
Technological progress shifts the production function by allowing the firm to achieve more output from a given combination of inputs (or the same output with fewer inputs)
Technological progress shifts the production function by allowing the firm to achieve less output from a given combination of inputs (or the same output with more inputs)
Technological progress shifts the import function to the right
None of the above
If demand increased and supply decreased then:
Quantity exchanged might rise or fall and price would rise
Quantity exchanged would rise and price would fall
Quantity exchanged would rise and price might rise or fall
Both quantities exchanged and price would rise
In short run:
Labor is variable
Labor is fixed
Capital is variable
None of the above
If the factors have to be employed in a fixed ratio, then the elasticity of substitution under Leontief technology is:
One
Zero
Two
Five
Which form of market structure is characterized by interdependence in decision-making as between the different competing firms?
Oligopoly
Perfect competition
Imperfect competition
None of the above
The budget line is described by each of the following except:
Prices of products are assumed to be fixed
The consumer need not to spend all his income
Consumer income is assumed to be fixed
The slope represents relative prices
The production process is:
Consuming goods and services
Transforming inputs into outputs
Wasting goods and services
Buying goods and services
Total utility and price are:
Directly related
Unrelated
Closely related
Negatively related
In substitution effect and income effect:
The substitution effect is more certain
The income effect is more certain
The substitution effect is uncertain
The income effect is always positive
In the immediate run:
Supply curves are inelastic
Supply curves are perfectly elastic
Demand curves are elastic
Supply curves are elastic
The price consumption curve (PCC) for commodity X is the locus of points of consumer equilibrium resulting when:
The price of only Y is varied
The price of only X is varied
The prices of both Y and X are varied
None of the above
In cournot model, at equuilibrium when MC = MR, the elasticity of demand is:
equal to one
zero
negative
equal to 2
In case of short-run, the supply curve of an industry is the horizontal summation of:
Marginal cost curves
Average cost curves
Total cost curves
None of the above
The slope of indifference curve shows:
Income level
Satisfaction level
Marginal rate of substitution
Demand level
The proportionality rule in production requires that the ratios of MP and factor prices are:
Doubled
Equalized
Not equalized
None of the above
Under monopolistic competition, the firms compete alongwith:
Supreme powers
Discretionary powers
Low powers
None of the above
The low cost price leader will charge:
higher prices
zero prices
lower prices
specific prices
If both demand and supply were to increase then:
Quantity exchanged would fall and price would rise
Quantity exchanged and price would both fall
Quantity exchanged would rise and price might rise or fall
Quantity exchanged and price would both rise
The feasible part of the demand curve for the monopolist who is charging high price will be:
The elastic part of a demand curve
The inelastic part of a demand curve
The constant elastic part of the demand curve
None of the above
Price discrimination occurs when:
Different prices are charged to different consumers for homogenous products
Same prices are charged for differentiated products
Different prices are charged for homogenous goods for successive units to the same customer
Any of the above condition is present
Extension (expansion) and contraction of demand are result of:
Change in consumers income
Change in consumers tastes
Change in price
None of the above
Identify the factor, which generally keeps the price elasticity of demand for a commodity low:
Variety of uses for that commodity
Its low price
Close substitutes for that commodity
High proportion of the consumers income spent on it
The cournot model is a model of:
Instable equilibrium
Stable equilibrium
Constant equilibrium
Fluctuating equilibrium
In monopoly, the relationship between average revenue and marginal revenue curves is as follows:
Average revenue curve lies above the marginal revenue curve
Average revenue curve coincides with the marginal revenue curve
Average revenue curve lies below the marginal revenue curve
Average revenue curve is parallel to the marginal revenue curve
The sufficient condition of firms equilibrium requires:
none of the above
The marshallian indirect utility function in the form of equation is:
x =a-bp
x =b-ap
x = f(P)
In dominant strategies I am doing the best, I can no matter:
What you do
What you are doing
What you not do
None of them
The indifference curve technique:
Helps in separating the income effect and the substitution effect
Does not help in separating the two effects
Mixed up the two effects
None of the above
In Edgeworth model, prices oscillate between:
Firms and industry price
Monopoly and duopoly price
Competitive and monopoly price
None of the above