9) How Is The Concept Of A Normal Return On Investment Related To The Distinction Between Business And Economic Profit?
The difference between the business and economic profit is that in economic profit, profit or loss is calculated by subtracting opportunity cost of the inputs used from the revenue of sales. On the other hand, accounting or business profit is the difference between the total revenue and total costs incurred to earn that revenue. Now, in business accounting normal return is the minimum profit that is required to cover the costs of inputs and all of the expenses associated with it. It can be a profit just greater than the breakeven …show more content…
Assume that the interest rate is 0%. Which of the following are correct?
a. Sell your 100 tons at the going market price of $250 and make a profit of $30 per ton ($50 less $20 cost of shipping). b. Buy the 100 tons next door at $180 and resell at a price of $250 less $20 shipping, for a net profit of $50 per ton. c. Hold onto your 100 tons and wait until it is needed for production. d. Buy the 100 tons next door at $180 and hold onto it until it is needed in production
To get the right answer I will need to identify the hidden costs of transporting the steel. In that case I will say both C (Hold onto your 100 tons and wait until it is needed for production) and D (Buy the 100 tons next door at $180 and hold onto it until it is needed in production) are correct. Answer A is incorrect because you would have to buy steel in the future for your own production needs, therefore, if you sold now and repurchased in the future would never recover the $20 shipping cost.
Salvatore’s Chapter 3:
a. Discussion Questions: 9 b. Problems: 1(a), 7, and 9
9) How would you react to a sales manager's announcement that he or she has in place a marketing program to maximize sales? Does maximum sales equal maximum profit?
Once total revenue or sales is maximum, this will cost the marginal revenue to be zero. For the fact