A Firm Pays $50,000 for a Machine That Is Used

question 171

Multiple Choice

A firm pays $50,000 for a machine that is used in production for one year,after which it is sold for $40,000 to another firm.The $10,000 difference is

• A) an explicit cost of production.
• B) economic depreciation, an implicit cost of production.
• C) normal profit.
• D) not counted as an economic cost of production.
• E) not an opportunity cost because it is not actually paid.

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Definitions:

Common Stock

A type of security that represents ownership in a corporation, with holders having a claim on the company's earnings and assets.

Income Tax Rate

The percentage at which an individual or corporation is taxed on their income.

Straight-Line Method

A method of calculating depreciation of an asset, which assumes the asset will lose an equal amount of value each year over its useful life.

Discount on Bonds Payable

Discount on bonds payable represents the difference between the face value of a bond and its selling price, when the bond is sold for less than its face value.