The Difference Between Economic Profits and Normal Profits Is That

question 14

Multiple Choice

The difference between economic profits and normal profits is that:

• A) normal profits are earnings based on the normal competitive payments to the factors used in production; economic profits are the above-normal returns associated with prices that exceed competitive prices.
• B) economic profits are earnings based on the normal competitive payments to the factors used in production; normal profits are the above-normal returns associated with prices that exceed competitive prices.
• C) normal profits are earnings based on the normal competitive payments to the factors used in production; economic profits are the above-normal returns associated with prices that exceed monopolistic prices.
• D) economic profits are earnings based on the noncompetitive payments to the factors used in production; normal profits are the above-normal returns associated with prices that exceed competitive prices.
• E) None of these answers is correct.

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Definitions:

Acquisition Method

An accounting technique used to consolidate the financial statements of two companies after an acquisition.

Equity Method

An accounting approach used to reflect the value of an investment in another company, where the investment's value is adjusted based on the investor's share of the investee's profits or losses.

Par Value

The face value of a bond or stock as stated by the issuing company, which does not necessarily reflect its market value.