A Firm Has Explicit Costs of $110,000 and Total Revenue

question 242

Multiple Choice

A firm has explicit costs of $110,000 and total revenue of $120,000.Which of the following is true about the firm?

• A) The firm might be making an economic profit but we need more information about implicit costs to know for sure.
• B) The firm is definitely making an economic profit because it must be minimizing its opportunity cost.
• C) The firm is incurring an economic loss if implicit costs are $10,000.
• D) The firm is making a normal profit if implicit costs are $0.
• E) The firm may be making an economic profit but only if implicit costs are negative.

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Definitions:

Indirect Method

The indirect method is a way to calculate cash flow from operations by adjusting net income for changes in non-cash accounts and non-operating items.

Journal

The initial record in which the effects of a transaction are recorded.

Free Cash Flow

The cash that a company generates after accounting for cash outflows to support operations and maintain its capital assets.

Financing Activities

Transactions that involve raising funds for the company through borrowing or issuing equity.