1. Marcie quit her job as a preschool teacher, which paid an annual salary of $2
ID: 1219106 • Letter: 1
Question
1. Marcie quit her job as a preschool teacher, which paid an annual salary of $28,000, and became a street food vendor. She used $8,000 out of her savings account that paid a 4% annual interest rate to buy a street cart to sell food. In her first year of operations, she spent $10,000 on food and supplies (napkins, cups, plates, etc.) and earned total revenue of $45,000. Marcie's accounting profit is ______ and economic profit is ______.
A) $28,000; $20,000
B) $35,000; –$1,000
C) $27,000; $17,000
D) $35,000; $6,680
2. When opportunity cost is positive, economic profit ______ accounting profit.
A) is greater than
B) is less than
C) equals
D) eliminates
3. Suppose there is a large and permanent increase in the demand for a good produced in a competitive industry. We should expect that:
A) existing firms will face lower sunk costs.
B) competition in the industry will decrease.
C) existing firms' average cost curves will shift upward.
D) firms will enter the industry because the market price will rise.
Explanation / Answer
1) accounting profit= 45000-10000-8000=27000, economic profit= 45000-8000-10000-28000(oppurtunity cost of labor)=-1000
2)oppurtunity cost positive means economic profit is less than accounting profit
3)when ddemand rises, price increases which implies more firms will enter as economic profit is positive
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