Types of Profit Practice Test

Based on the firm’s cost and revenue information, which statement correctly compares accounting and economic profit? A firm has total revenue of $1,200 per week. Explicit costs are $700 in wages and $200 in rent. The owner also uses a building that could be rented out for $150 per week and $1,000 of personal funds that could earn $20 per week elsewhere.

Based on the firm’s cost and revenue information, is the firm earning normal profit? A home cleaning service earns total revenue of $75,000. Its explicit costs are $40,000 for supplies and hired help and $15,000 for advertising and insurance, for total explicit costs of $55,000. The owner gives up $18,000 in wages from another job and uses a vehicle that could be leased out for $2,000 per year (implicit costs total $20,000).