Answer to Question #249389 in Macroeconomics for Naledi

Question

What will happen if a shoe firm sells its shoes at a price lower than the opportunity cost of the inputs used in the production process.

A. The firm will make both accounting and economic profits.
B. The firm will make both accounting and economic loss.
C. The firm will possibly make an accounting profit but will make economic less.
D. The firm will possibly make an economic profit and an accounting loss

Answer 1

C. The firm will possibly make an accounting profit but will make an economic loss.

This is because to gain economic profit, implicit costs, which are generally costs of a firm's resources are used. Therefore, selling at a price lower than the opportunity cost of inputs will result in an economic loss.

Accounting profit will be attained because it is a representation of the net income of the firm after the deduction of only explicit costs of running the firm.