Question

1. Calculate accounting profit using the following data: Explicit costs = $40,000 Implicit costs = $20,000...

1. Calculate accounting profit using the following data: Explicit costs = $40,000 Implicit costs = $20,000 Revenue = $100,000 a) $40,000 b) $60,000 c) $80,000 d) $100,000

2. Which of the following would represent inelastic demand? a) 5% decrease in quantity; 3% increase in price b) 3% decrease in quantity; 5% increase in price c) 5% decrease in quantity; 5% increase in price d) 3% decrease in quantity; 3% increase in price

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Homework Answers

Answer #1

1) Answer is B. $60,000

Accounting profit = Total revenue - Explicit cost

= 100,000 - 40,000 = $60,000.

Economic profit = Total revenue - Explicit cost - Implicit cost

= 100,000 - 40,000 - 20,000 = $40,000

2) Answer is B.

Inelastic demand means % change in quantity less than the % change in price or value of Price elasticity is less than one.

Price elasticity of demand = % change in quantity demanded / % change in price.

Option A- Ed = 5 / 3 = 1.67

Option B- Ed = 3 / 5 = 0.6

Option C- Ed = 5 / 5 = 1

Option D- Ed = 3 / 3 = 1.

So option B have elasticity of demand less than one that means it have inelastic demand.

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