How do the concepts of accounting profit and economic profit differ? Why is economic profit smaller than accounting profit? What are the three basic sources of economic profit? Classify each of the following according to those sources:a. A firm’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 the completion of a new highway past its door.c. The profit received by a firm due to an unanticipated change in consumer tastes.
How do the concepts of accounting profit and economic profit differ? Why is economic profit smaller than accounting profit? What are the three basic sources of economic profit? Classify each of the following according to those sources:a. A firm’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 the completion of a new highway past its door.c. The profit received by a firm due to an unanticipated change in consumer tastes.
Chapter23: Profit Maximization
Section: Chapter Questions
Problem 14E
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How do the concepts of accounting profit and economic profit differ? Why is economic profit smaller than accounting profit? What are the three basic sources of economic profit? Classify each of the following according to those sources:
a. A firm’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 the completion of a new highway past its door.
c. The profit received by a firm due to an unanticipated change in consumer tastes.
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