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Author Question: Why is it not a contradiction to say that a firm is simultaneously earning an accounting profit but ... (Read 126 times)

rmenurse

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on: Jun 29, 2018
Why is it not a contradiction to say that a firm is simultaneously earning an accounting profit but suffering an economic loss?
 
  What will be an ideal response?

Question 2

Maxine's Cookie Shop sells chocolate chip cookies in a perfectly competitive market for 2 per dozen. Maxine currently produces 200 dozen cookies per day and average total cost at this level of production is 1.75 .
 
  What level of profit is this firm earning? Explain.


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Danny Ewald

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Reply #1 on: Jun 29, 2018
Answer to Question 1

Accounting profit is determined by taking total revenue and subtracting explicit costs only. Economic profit is determined by taking total revenue and subtracting all economic costs which include explicit and implicit costs. Therefore, this statement is not a contradiction.

Answer to Question 2

Maxine's Cookie Shop is earning profits of 50 per day. This can be calculated by taking total revenue (2 x 200 = 400) and subtracting total cost (1.75 x 200 = 350).


rmenurse

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Reply 2 on: Jun 29, 2018
Gracias!

nathang24

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Reply 3 on: Yesterday
Great answer, keep it coming :)

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