Philip Owns and Operates a Gas Station

question 22

Multiple Choice

Philip owns and operates a gas station. Philip works 40 hours a week managing the station but doesn't draw a salary. He could earn $600 a week doing the same work for Terrance. The station owes the bank $100,000 and Philip has invested $100,000 of his own money. If Philip's accounting profits are $1,000 per week while the interest on his bank debt is $500 per week, the business's economic profits are

• A) $500 per week.
• B) -$100 per week.
• C) $400 per week.
• D) $0 per week.
• E) $1,000 per week.

---

Definitions:

Option Contract

A contract which grants the holder the right, but not the obligation, to buy or sell an asset at a set price on or before a certain date.

Counteroffer

A counteroffer is a response to an original offer, modifying some of its terms and thereby rejecting the original offer.

Acceptance

An agreement by one party to the terms of the offer made by another.

Revocation

The action of rescinding or recalling a decision, law, license, or agreement, making it no longer valid.