The Objective of an Economic Model Is to

question 42

Multiple Choice

The objective of an economic model is to

• A) be an accurate description of reality
• B) yield better understanding of important relationships
• C) use simplifying assumptions to make positive economic statements
• D) use basic principles of economics to derive fundamental assumptions about human behavior
• E) predict real-world occurrences with complete accuracy

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Definitions:

Accounting Profit

The total revenue of a business minus the explicit costs and depreciation, calculated using standard accounting practices.

Annual Revenue

The total income generated by a company or an organization from its operations, calculated on a yearly basis.

Normal Profit

The level of profit necessary for a company to remain competitive in the market, essentially breaking even when accounting for both explicit and implicit costs.

Implicit Costs

The opportunity costs of using resources owned by the firm for its own use, rather than selling those resources externally.