The Economy's Current Rate of Interest Is 10 Percent and a Firm

question 24

Multiple Choice

The economy's current rate of interest is 10 percent and a firm has $10,000 of owner-invested capital. Its total revenue is $5000 and the firm's explicit costs are $3500. From this we know that this firm's

• A) accounting profit is $500.
• B) economic profit is $1,500.
• C) accounting profit is $11,500.
• D) economic profit is $500.

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Definitions:

Cost Behavior Classifications

The categorization of costs based on how they change in relation to changes in a company’s level of activity or volume.

Activity Base

A measure upon which the allocation of costs is based in activity-based costing, often relating to a metric that causes costs to occur such as machine hours or labor hours.

Cost Behavior

The way in which costs change in relation to variations in an organization’s activity level.

Variable Costs

Costs that change in proportion to the level of production or sales, such as raw materials and direct labor.