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Suppose that an owner is earning total revenue of Rs. 1,00,000 and is increasing explicit cost of Rs. 60,000. If the owner could work for another company for Rs. 30,000 a year, we would conclude that:
- a)The firm is earning economic profit or Rs. 10,000
- b)The firm is earning accounting profit or Rs. 40,000
- c)The firm is earning economic profit of Rs. 40,000
- d)Both (a) and (b)
Correct answer is option 'D'. Can you explain this answer?
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Suppose that an owner is earning total revenue of Rs. 1,00,000 and is ...
Explanation:
The owner's total revenue is Rs. 1,00,000 and explicit cost is Rs. 60,000. However, if the owner could work for another company for Rs. 30,000 a year, then we need to consider the opportunity cost of the owner's time.
Opportunity cost refers to the cost of the next best alternative foregone. In this case, the opportunity cost of the owner's time is Rs. 30,000, which is the amount the owner could earn by working for another company.
Now, let us consider the two types of profit:
1. Accounting profit: This is the difference between total revenue and explicit costs. In this case, accounting profit is Rs. 40,000 (Rs. 1,00,000 - Rs. 60,000).
2. Economic profit: This is the difference between total revenue and all costs, including both explicit and implicit costs. In this case, the implicit cost is the opportunity cost of the owner's time, which is Rs. 30,000. Therefore, economic profit is Rs. 10,000 (Rs. 1,00,000 - Rs. 60,000 - Rs. 30,000).
Since the owner could earn Rs. 30,000 by working for another company, the economic profit is lower than the accounting profit. Therefore, option (d) is correct as both economic profit and accounting profit are applicable in this case.
The owner's total revenue is Rs. 1,00,000 and explicit cost is Rs. 60,000. However, if the owner could work for another company for Rs. 30,000 a year, then we need to consider the opportunity cost of the owner's time.
Opportunity cost refers to the cost of the next best alternative foregone. In this case, the opportunity cost of the owner's time is Rs. 30,000, which is the amount the owner could earn by working for another company.
Now, let us consider the two types of profit:
1. Accounting profit: This is the difference between total revenue and explicit costs. In this case, accounting profit is Rs. 40,000 (Rs. 1,00,000 - Rs. 60,000).
2. Economic profit: This is the difference between total revenue and all costs, including both explicit and implicit costs. In this case, the implicit cost is the opportunity cost of the owner's time, which is Rs. 30,000. Therefore, economic profit is Rs. 10,000 (Rs. 1,00,000 - Rs. 60,000 - Rs. 30,000).
Since the owner could earn Rs. 30,000 by working for another company, the economic profit is lower than the accounting profit. Therefore, option (d) is correct as both economic profit and accounting profit are applicable in this case.
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Suppose that an owner is earning total revenue of Rs. 1,00,000 and is ...
Here economic profit is 10000 because economic profit is calculated through revenue - implicit - explicit cost and accounting profit is only revenue - explicit cost here we can say accounting cost is 40000 - revenue 30000 then we get 10000 economic cost
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Suppose that an owner is earning total revenue of Rs. 1,00,000 and is increasing explicit cost of Rs. 60,000. If the owner could work for another company for Rs. 30,000 a year, we would conclude that:a)The firm is earning economic profit or Rs. 10,000b)The firm is earning accounting profit or Rs. 40,000c)The firm is earning economic profit of Rs. 40,000d)Both (a) and (b)Correct answer is option 'D'. Can you explain this answer?
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Suppose that an owner is earning total revenue of Rs. 1,00,000 and is increasing explicit cost of Rs. 60,000. If the owner could work for another company for Rs. 30,000 a year, we would conclude that:a)The firm is earning economic profit or Rs. 10,000b)The firm is earning accounting profit or Rs. 40,000c)The firm is earning economic profit of Rs. 40,000d)Both (a) and (b)Correct answer is option 'D'. Can you explain this answer? for CA Foundation 2024 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about Suppose that an owner is earning total revenue of Rs. 1,00,000 and is increasing explicit cost of Rs. 60,000. If the owner could work for another company for Rs. 30,000 a year, we would conclude that:a)The firm is earning economic profit or Rs. 10,000b)The firm is earning accounting profit or Rs. 40,000c)The firm is earning economic profit of Rs. 40,000d)Both (a) and (b)Correct answer is option 'D'. Can you explain this answer? covers all topics & solutions for CA Foundation 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Suppose that an owner is earning total revenue of Rs. 1,00,000 and is increasing explicit cost of Rs. 60,000. If the owner could work for another company for Rs. 30,000 a year, we would conclude that:a)The firm is earning economic profit or Rs. 10,000b)The firm is earning accounting profit or Rs. 40,000c)The firm is earning economic profit of Rs. 40,000d)Both (a) and (b)Correct answer is option 'D'. Can you explain this answer?.
Suppose that an owner is earning total revenue of Rs. 1,00,000 and is increasing explicit cost of Rs. 60,000. If the owner could work for another company for Rs. 30,000 a year, we would conclude that:a)The firm is earning economic profit or Rs. 10,000b)The firm is earning accounting profit or Rs. 40,000c)The firm is earning economic profit of Rs. 40,000d)Both (a) and (b)Correct answer is option 'D'. Can you explain this answer? for CA Foundation 2024 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about Suppose that an owner is earning total revenue of Rs. 1,00,000 and is increasing explicit cost of Rs. 60,000. If the owner could work for another company for Rs. 30,000 a year, we would conclude that:a)The firm is earning economic profit or Rs. 10,000b)The firm is earning accounting profit or Rs. 40,000c)The firm is earning economic profit of Rs. 40,000d)Both (a) and (b)Correct answer is option 'D'. Can you explain this answer? covers all topics & solutions for CA Foundation 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Suppose that an owner is earning total revenue of Rs. 1,00,000 and is increasing explicit cost of Rs. 60,000. If the owner could work for another company for Rs. 30,000 a year, we would conclude that:a)The firm is earning economic profit or Rs. 10,000b)The firm is earning accounting profit or Rs. 40,000c)The firm is earning economic profit of Rs. 40,000d)Both (a) and (b)Correct answer is option 'D'. Can you explain this answer?.
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Suppose that an owner is earning total revenue of Rs. 1,00,000 and is increasing explicit cost of Rs. 60,000. If the owner could work for another company for Rs. 30,000 a year, we would conclude that:a)The firm is earning economic profit or Rs. 10,000b)The firm is earning accounting profit or Rs. 40,000c)The firm is earning economic profit of Rs. 40,000d)Both (a) and (b)Correct answer is option 'D'. Can you explain this answer?, a detailed solution for Suppose that an owner is earning total revenue of Rs. 1,00,000 and is increasing explicit cost of Rs. 60,000. If the owner could work for another company for Rs. 30,000 a year, we would conclude that:a)The firm is earning economic profit or Rs. 10,000b)The firm is earning accounting profit or Rs. 40,000c)The firm is earning economic profit of Rs. 40,000d)Both (a) and (b)Correct answer is option 'D'. Can you explain this answer? has been provided alongside types of Suppose that an owner is earning total revenue of Rs. 1,00,000 and is increasing explicit cost of Rs. 60,000. If the owner could work for another company for Rs. 30,000 a year, we would conclude that:a)The firm is earning economic profit or Rs. 10,000b)The firm is earning accounting profit or Rs. 40,000c)The firm is earning economic profit of Rs. 40,000d)Both (a) and (b)Correct answer is option 'D'. Can you explain this answer? theory, EduRev gives you an
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