Question

An economic profit will always (LESS THAN / EQUAL TO / OR EXCEED)   accounting profit because an economic profit includes implicit costs and an accounting profit does not. This means that if the economic profit is positive, the accounting profit is (POSITIVE / NEGATIVE / ZERO) and when the economic profit is negative, the accounting profit is (POSITIVE / NEGATIVE / ZERO).

RAJIV: What would you expect to happen to the number of businesses operating in a market over time if economic profit is negative and economic losses are currently experienced? What if economic profits are positive, and very large?

SIMONE: When economic profit is negative, we would expect (SOME BUSINESSES TO LEAVE / NEW BUSINESSES TO ENTER) the market. When economic profit is positive, we would expect (SOME BUSINESSES TO LEAVE / NEW BUSINESSES TO ENTER) the market.

Answer 1

An economic profit will always LESS THAN accounting profit because an economic profit deducts both the explicit costs and the implicit costs while on the other hand an accounting profit does not include implicit profit This means that if the economic profit is positive, the accounting profit is POSITIVE and when the economic profit is negative, the accounting profit is can be positive negative or zero. This is because accounting profit does not include implicit cost so it remains unaffected. Select Positive if only one option is to be selected.

When economic profit is negative, we would expect SOME BUSINESSES TO LEAVE the market. This is because there is no incentive for firms to continue to operate when there are economic losses. When economic profit is positive, we would expect NEW BUSINESSES TO ENTER the market.