If a Firm Is Earning Zero Economic Profits

question 74

Multiple Choice

If a firm is earning zero economic profits:

• A)its revenues are sufficient to pay explicit costs,but not implicit costs.
• B)the owner will not be able to pay himself or herself a salary.
• C)it will shut down in the long run,but will continue to operate in the short run.
• D)the owners are earning a return on their time and investment that is equal to the opportunity costs of that time and investment.

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Definitions:

Operating Expenses

Costs associated with the regular functioning of a business, not including cost of goods sold but encompassing elements like rent, utilities, and employee salaries.

Sales Returns

Transactions where customers return previously purchased merchandise, leading to a reversal of revenue previously recognized and a refund or credit issued to the customer.

Accounts Receivable

Receivables from clients or customers for goods sold or services performed by a business, awaiting payment.

Contra-Revenue

Accounts on the income statement that are deducted from gross revenue to arrive at net revenue, including sales returns, allowances, and discounts.