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AP Microeconomics Practice Quiz: Types of Profit

Written by AP Content Team, Verified for 2026 AP Exams, Last updated: May 2026

Test your understanding with short quizzes. This quiz has 9 questions to check your progress.

Question 1 of 9

According to the provided text, what is the primary factor that distinguishes economic profit from accounting profit?

All Questions (9)

According to the provided text, what is the primary factor that distinguishes economic profit from accounting profit?

A) Total revenue

B) Explicit costs

C) Implicit costs

D) Marginal costs

Correct Answer: C

The content explicitly states that 'Accounting profit fails to account for implicit costs,' which are included in the calculation of economic profit. This is the key difference between the two measures.

A firm's decision to enter or exit a market is primarily driven by the presence of which of the following?

A) Positive accounting profit

B) Normal profit

C) Economic profit or loss

D) High total revenue

Correct Answer: C

The text states, 'Firms respond to economic profit (loss) rather than accounting profit.' This indicates that economic profit is the key signal for firm behavior regarding market entry and exit.

Which of the following would be considered an implicit cost for an entrepreneur who starts their own business?

A) The monthly rent paid for the office space.

B) The wages paid to a part-time employee.

C) The salary the entrepreneur forgoes by not working for another company.

D) The cost of purchasing raw materials for production.

Correct Answer: C

The content lists 'an entrepreneur's time' as an example of an implicit cost. This represents the opportunity cost of their labor—the salary they could have earned elsewhere. The other options are all explicit, out-of-pocket expenses.

A firm is said to be earning a 'normal profit' when its revenues are just enough to cover all its costs, including which of the following?

A) Only its explicit, out-of-pocket expenses.

B) The compensation for risk and the entrepreneur's time.

C) Only the cost of financial capital.

D) The costs required to generate a positive accounting profit.

Correct Answer: B

The text defines normal profit as the result of fully compensating for implicit costs, which include 'compensation for risk, or an entrepreneur's time.' When these are covered, economic profit is zero.

A firm has a total revenue of $200,000 and explicit costs of $150,000. The owner has invested $100,000 of their own money, which could have earned a 5% return, and gave up a job paying $40,000 per year. What is the firm's economic profit?

A) $50,000

B) $10,000

C) $5,000

D) $45,000

Correct Answer: C

First, calculate accounting profit: $200,000 (Revenue) - $150,000 (Explicit Costs) = $50,000. Next, calculate implicit costs: $100,000 * 5% (forgone interest/cost of capital) + $40,000 (forgone salary) = $5,000 + $40,000 = $45,000. Finally, calculate economic profit: $50,000 (Accounting Profit) - $45,000 (Implicit Costs) = $5,000.

If a firm is earning a positive accounting profit but a negative economic profit, which of the following must be true?

A) The firm's total revenue is less than its explicit costs.

B) The firm's implicit costs are greater than its accounting profit.

C) The firm is earning a normal profit.

D) The firm's explicit costs are greater than its implicit costs.

Correct Answer: B

Economic Profit = Accounting Profit - Implicit Costs. For economic profit to be negative while accounting profit is positive, the implicit costs must be larger than the accounting profit. For example, if accounting profit is $10,000 and implicit costs are $12,000, economic profit is -$2,000.

When an economist says a firm is earning zero economic profit, it implies that the firm is:

A) failing and will soon exit the market.

B) earning a positive accounting profit.

C) not generating enough revenue to cover its explicit costs.

D) earning exactly a normal profit.

Correct Answer: D

The content states that when implicit costs are fully compensated, the result is normal profit. This situation corresponds to an economic profit of zero, meaning the firm is covering all its costs, both explicit and implicit (opportunity costs), and has no incentive to exit the industry.

The calculation of a firm's accounting profit involves subtracting which of the following from total revenue?

A) Only implicit costs.

B) Both explicit and implicit costs.

C) Only explicit costs.

D) The cost of financial capital and compensation for risk.

Correct Answer: C

The provided text indicates that accounting profit is distinct from economic profit because it 'fails to account for implicit costs.' Therefore, accounting profit is calculated as total revenue minus only explicit costs.

Why is economic profit considered a better indicator of a firm's performance than accounting profit for decision-making purposes?

A) Because it is always a higher value than accounting profit.

B) Because it incorporates the opportunity costs of the resources used by the firm.

C) Because it is the official number used for tax calculations.

D) Because it ignores non-cash expenses like depreciation.

Correct Answer: B

Firms respond to economic profit because it provides a more complete picture. By including implicit costs (opportunity costs), it tells the owner if their resources (time, capital) are being put to their best possible use, which is critical for making strategic decisions.