Need Help with Microeconomics questions 1. What is the difference between accoun

Question

Need Help with Microeconomics questions

1. What is the difference between accounting profit and economic profit? Why do partnerships typically earn less profit than corporations?

2. What role does uncertainty, heredity, and natural selection play in determining whether a Minnesota-based canoe manufacturer will earn profit next year?

3. What is the difference between economic adaptation and mutation? Give some examples of each.

4. What would a biological economist say about the government’s decision to force carmakers to raise fuel efficiency standards? How could we get higher fuel economy without government interference?

Explanation / Answer

1. The main difference between economic profit and accounting profit is that economic profit takes opportunity cost into consideration whereas accounting profit does not take opportunity cost into consideration. Accounting profit only considers the actual costs incurred and actual benefits received while calculating profit. Opportunity costs refer to the benefits foregone for choosing another alternative. Economic profit takes opportunity into consideration so accounting profit is higher than economic profit in case there is opportunity cost involved. So, economic profit = accounting profit - opportunity cost. For example, you left your job which pays you USD 50,000 a year to start a business. In the business, you incurred an actual cost of $30,000 and you earned a revenue of $120,000. Now, the accounting profit = revenue - cost = $120,000 - $30,000 = $90,000. However, if we want to calculate the economic profit, we need to consider the opportunity cost as well. Here, the opportunity cost is $50,000 i.e. the salary you had to forgo to start the business. Economic profit = accounting profit - opportunity cost = $90,000 - $50,000 = $40,000.

Partnerships generally earn less profit than corporations because partnerships tend to have small business operations which result in less revenue and less profit. Partnership model can hardly support businesses of large size. Corporate structure is more suitable for large size businesses which have large-scale operations. Such large corporations need much more funds, which can be sourced from the capital market. Partnership businesses can hardly grow beyond a certain size because of problems in managing large operations which involve a much higher level of risks and requires a much higher amount of funds.

Related Questions

Navigate

• Browse (All)
• Browse N
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.