Question

QUESTION 1 A self-employed computer repairman generated 575,000 in revenue last year. He paid $7.000 in supplies. $2.000 in traveling expenses, and $1,000 in other cash payments for doing business. He knows that if he worked for an IT department in a larger company that he could earn a salary of $67,500. Should the computer repairman stay self-employed? Yes, because his economic profit is positive. No, because his accounting profit is negative. No, because his economic profit is negative It is uncertain because accounting and economic profit are equal. QUESTION 2 If a firm is earning zero economic profit, it implies The firm is earning no accounting profit. The firm is not engaged in the best possible activity The firm has other opportunities that are just as good but not better than its current activity. The firm is engaged in an activity that is strictly better than any other option. LECTION 2 Click Save and submit to save and submit. Click Save All Armers to save all ans

Answer 1

1) No, because the economic profit is negative.

Explanation

In case the repairman does buisness his accounting profit is $65000 ie (75000-7000-2000-1000), but his economic profit is negative. Economic profit considers the opportunity costs as well. The opportunity cost of doing buisness is $67,500. Hence the repairman can earn greater amount by taking up a job at the IT firm

2) If the firm is earning zero economic profit, it implies that the firm is not engaged in the best posible activity.

Explanation

Economic profit considers the opportunity costs of doing a buisness. If the economic profits are zero it implies that the opportunity cost of doing buisness is too high and thus, the firm should consider the next best alternative