UGC NET COMMERCE November 2017(Paper-II) Q12
0. Which one of the following statements is true?
- A
Pure profit is the return in excess of the opportunity cost
- B
Accounting profit is the excess of total revenue over and above the explicit and implicit costs
- C
Profit maximization is the sole objective of the modern firms
- D
Profit is maximum when the difference between marginal revenue and marginal cost is maximum
- Option : A
- Explanation : Economists’ concept of profit is of pure profit. It is also called ‘economic profit’ or ‘just profit’. ‘Pure profit’ is a return over and above the opportunity cost, i.e., the payment that would be ‘necessary to draw forth the factors of production from their most remunerative alternative employment’. Pure profit may thus be defined as ‘a residual left over after all contractual costs have been met, including the transfer costs of management, insurable risks, depreciation, and payments to shareholders sufficient to maintain investment at its current level’. In other words, pure profit equals net profit less opportunity costs of management, insurable risk, depreciation of capital, necessary minimum payments to shareholders that can prevent them from withdrawing their capital from its current use.
