1.5. A recent issue of Business Week reported the following:

During the recent auto sales slump, GM, Ford, and Chrysler decided it was cheaper to sell cars to rental companies at a loss than to lay off workers. That’s because closing and reopening plants is expensive, partly because the auto makers’ current union contracts obligate them to pay many workers even if they’re not working.

When the article discusses selling cars “at a loss,” is it referring to accounting profit or economic profit? How will the two differ in this case?

Explain briefly.

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Units of Output Fixed Variable Total Marginal Cost Cost Cost Cost Average Fixed Cost 1 100 125 2 145 3 157 4 177 5 2021 6 236 7 270 8 326 9 398 10 490 Average Variable Cost Average Total Cost