Question

Incorrect Question 25 0/1 pts When accounting profits are positive, economic profits must be positive. will be negative. will equal zero could be positive, negative or zero.

Answer 1

25.

An implicit cost can be defined as the opportunity cost equal to what a firm give up for using the factor of production which it already owns and thus does not pay rent for it. Hence income tax payment is not a return on the investment.

An explicit cost is defined as the direct payment made to others for using the resources and running a business. For instance, wage, rent and materials. Hence income tax payment is not a return on the investment.

Accounting profit=TR- explicit cost

Economic profit=TR-(implicit cost + explicit cost)

When accounting profit is positive, then economic profit may be zero, positive and negative, it depends on the value of implicit cost.

Hence option fourth is the correct answer.

26.

The real interest rate is inflation adjusted nominal interest rate.

Hence it can be said that real interest rate is calculated as substracting anticipated inflation rate from nominal interest rate.

Hence option first is the correct answer.