Suppose That a Business Incurred Implicit Costs of $500,000 and Explicit

question 118

Multiple Choice

Suppose that a business incurred implicit costs of $500,000 and explicit costs of $5 million in a specific year. If the firm sold 100,000 units of its output at $50 per unit, its accounting

• A) profits were $100,000 and its economic profits were $0.
• B) losses were $500,000 and its economic losses were $0.
• C) profits were $500,000 and its economic profits were $1 million.
• D) profits were $0 and its economic losses were $500,000.

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Definitions:

Average Total Cost

The total cost divided by the quantity of output produced; it includes both fixed and variable costs.

Long-Run Equilibrium

A state in which all firms in a perfectly competitive market earn zero economic profits, indicating no incentive for entry or exit.

Monopolistically Competitive

Describes a market structure where many firms offer products that are similar but not perfect substitutes, leading to competition based on product differentiation.

Equilibrium Price

The price at which the quantity of a product offered is equal to the quantity of the product in demand, achieving a market balance.