A Software Company Writes a Better Operating System for Personal

question 11

Multiple Choice

A software company writes a better operating system for personal computers and earns very large profits on this operating system. Which of the following is true?

• A) The profits this firm earns are a return for an innovation.
• B) The profits this firm earns aren't deserved, as the firm did not take any risks.
• C) This firm must not be in a competitive market if it was able to earn a profit.
• D) The firm must be a monopoly.

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Definitions:

GAAP

Stands for Generally Accepted Accounting Principles, which are a collection of commonly-followed accounting rules and standards for financial reporting.

Abusive Tax Shelter

Investment schemes that are designed primarily to evade taxes, often by exploiting legal loopholes.

Federal Tax Law

Legislation that governs the collection and regulation of taxes at the national level in the United States, including income, corporate, and sales taxes.

Gross Income

The total income earned by an individual or business before any deductions or taxes are taken out.