Concepts of accounting profit and economic profit

Assignment Help Managerial Economics

Reference no: EM1373116

2. How do the ideas of accounting profit and economic profit differ? Explain why is economic profit smaller than accounting profit? Determine the three basic sources of economic profit? Classify each of the following according to those sources:
a. A company's profit from developing and patenting a new medication that greatly reduces cholesterol and thus diminishes the likelihood of heart disease and stroke.
b. A restaurant's profit that results from construction of a new highway past its door.
c. The profit received by a firm benefiting from an unanticipated change in consumer tastes.

3. Suppose that you hear two people arguing about energy. One says that we are running out of energy. The other counters that we are running out of cheap energy. Explain which person is correct and why.

4. Recall the model of non-renewable resource extraction presented in Figure 15.7. Suppose that a technological breakthrough means that extraction costs will fall in the future (but not in the present). What will this do to future profits and, therefore to current user cost? Will current extraction increase or decrease? Compare this to a situation where future extraction costs remain unchanged but current extraction costs fall. In this situation, does current extraction increase or decrease? Does the firm's behavior make sense in both situations? That is, does its response to the changes in production costs in each case maximize the firm's stream of profits over time?

Reference no: EM1373116

Questions Cloud

Compute the beta of the firm : Ccompute the beta of the firm if the risk-free rate is 4%, and the market rate of return is 14 percent.

Capital asset pricing model to calculate beta : If T-Bills have a 4 percent rate and the expected portfolio return is 12 percent How would I use the capital asset pricing model to calculate

Determine the companies cost of capital : If the market price of common stock of a real estate company is 6 million and the value of its debt is 4 million with a beta of 1.5 and the risk premium on the market is 6 percent and the treasury bill rate is 4 percent

Evaluation of an investment opportunity : ANNA is considering to form a new company with initial investment of $8Million, there are two projects available for her to choose. the first project offers a 40 percent chance of a $12.5 million payoff

Concepts of accounting profit and economic profit : How do the ideas of accounting profit and economic profit differ and explain why is economic profit smaller than accounting profit also determine the three basic sources of economic profit?

Estimating expected rate of return on the stock : Computing expected rate of return, required rate of return on a stock. Assume Walmart stock currently sells for $30 per share. The stock just paid a dividend of $0.75 per share.

Computing profit margin and asset turnover : Your parents are planning investing in PepsiCo common stock. They ask you, as an accounting expert, to make an analysis of the firm for them. The financial statements of firm can be found at firm's website.

Compute expected rate of return and standard deviation : You are planning a security with the following possible rates of return, Compute the expected rate of return and the standard deviation of the returns.

Computing the expected return : United State Operations of Audi has been requested through the house office in Frankfurt to estimate the expected return on investment and risk for 2010.

User Account

All Pages