Q.22 Take a look at Figure 21-2. Expl... [FREE SOLUTION]

Chapter 21: Q.22 (page 485)

Take a look at Figure 21-2. Explain why the figure implies that if the amount of accounting profit were to shrink to zero while the normal rate of return on investment remained unchanged, economic profit necessarily would become negative.

Short Answer

Expert verified

Economic profit is the distinction between the all-out income and economic costs that is express expenses in addition to implied costs.

Step by step solution

Given Information

In the event that how much measure of accounting profit were to reduce to zero while the typical pace of profit from speculation stayed unaltered, economic profit essentially would become zero, the accounting profit becomes zero methods the complete income and express expenses are equivalent

Explanation

In working out this we add the verifiable expense notwithstanding the unequivocal expense.

The accounting profit of a firm is somewhat higher than the economic profit on the grounds that while working out accounting profits it doesn't consider the verifiable expenses of the firm. The economic profit is considered alongside both the verifiable and express expenses also. Economic profit is the contrast between complete income and all unequivocal expenses and certain expenses. The unequivocal expense is the sum paid as compensations, lease and other expenses. The implied cost is considered as the open door cost of elements.