A Firm Earning a Normal Profit

question 5

Multiple Choice

A firm earning a normal profit

• A) should exit the industry.
• B) will shut down.
• C) has no incentive to leave the industry.
• D) is covering explicit costs but not implicit costs.
• E) is covering implicit costs but not explicit costs.

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Definitions:

Differential Analysis

The area of accounting concerned with the effect of alternative courses of action on revenues and costs.

Unprofitable Segment

A division or business unit within a company that does not generate profits and may incur losses.

Plant Assets

Long-term tangible assets that are used in the operations of a business and are not intended for resale, such as machinery, buildings, and land.

Differential Revenue

The difference in revenue generated from two different business decisions or periods, used to analyze the financial impact of those decisions.