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Chapter 29: Problem 15

Which statement is true? (LO6) a) Profits are about one-quarter of GDP. b) Profits are about 1 percent of GDP. c) Accounting profits are larger than economic profits. d) None of these statements is true.

Short Answer

Expert verified
The correct statement is (c) Accounting profits are larger than economic profits.

Step by step solution

01

Analyze Statement a)

We need to determine if profits are about one-quarter of GDP. In most economies, profits are a significant portion of GDP, but they are not as high as one-quarter. Therefore, this statement is not true.
02

Analyze Statement b)

We need to determine if profits are about 1 percent of GDP. Profits are an important part of the economy, and this value seems too low. Therefore, this statement is not true as well.
03

Analyze Statement c)

We need to determine if accounting profits are larger than economic profits. Accounting profits are the difference between total revenues and explicit costs, while economic profits consider both explicit and implicit (opportunity) costs. Therefore, since accounting profits don't account for implicit costs, they are generally larger than economic profits. So, this statement is true.
04

Choose the correct statement

After analyzing the given statements, it is clear that the correct statement is: c) Accounting profits are larger than economic profits.

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