Please answer the following questions about the material in Chapters 2 and 3:
- Which value is typically larger, accounting profits or economic profits? When are accounting profits equal to economic profits?
- Please refer to the Cadbury income statement in Table 3.1. Suppose the depreciation and amortization expenses are based on the prices for buildings and other facilities purchased several years ago, and the annualized opportunity cost for these capital assets is approximately 80% higher in the current market. What is the firm’s economic profit?
- The authors explain in Chapter 2 that subsidies are the opposite of taxes. Recently, the Trump administration announced that US soybean farmers will receive subsidies to offset the tariffs imposed by China on soybeans imported from the US. Prior to the imposition of tariffs by the US and China, soybeans were selling for about $11 per bushel in the US. The 25% tariff imposed on US soybean imports to China reduced US soybean prices by about 12.5% (because tariffs or taxes are shared by buyers and sellers and only part of the US soybean crop is exported to China). To offset this impact, the US federal government will pay US soybean farmers $1.65 per bushel on one-half of their 2018 production. Does this subsidy completely offset the tariff impact for US soybean farmers?
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