Which of the following explains why economic profit is always less than accounting profit?

Choose 1 answer:
(A) Economic profit includes less revenues than accounting profit
(B) Economic profit includes explicit costs but not implicit costs, and accounting profit includes both of these.
(C) Economic profit includes more utility than accounting profit.
(D) Economic profit includes more revenues than accounting profit.
(E) Economic profit includes more costs than accounting profit.

Question

Which of the following explains why economic profit is always less than accounting profit?

Choose 1 answer:
(A) Economic profit includes less revenues than accounting profit
(B) Economic profit includes explicit costs but not implicit costs, and accounting profit includes both of these.
(C) Economic profit includes more utility than accounting profit.
(D) Economic profit includes more revenues than accounting profit.
(E) Economic profit includes more costs than accounting profit.

Accepted Answer

∻Solution∻ ‖ a ⋮ Economic Profit: Economic profit is calculated as total revenue minus total costs, including both explicit and implicit costs. ‖ ‖ b ⋮ Accounting Profit: Accounting profit is calculated as total revenue minus only explicit costs. ‖ ‖ c ⋮ Implicit Costs: Implicit costs are the opportunity costs of using resources owned by the firm for which no explicit payment is made. ‖ ‖ d ⋮ Comparison: Since economic profit includes both explicit and implicit costs, it accounts for more costs than accounting profit. ‖ ∻Answer∻ ⚹ (E) Economic profit includes more costs than accounting profit. ⚹ ∻Key Concept∻ ⚹ Economic profit includes both explicit and implicit costs, while accounting profit includes only explicit costs. ⚹ ∻Explanation∻ ⚹ Economic profit is always less than accounting profit because it considers the opportunity costs (implicit costs) in addition to the explicit costs. ⚹◊What is the formula for calculating economic profit in Microeconomics⍭ Generate me a similar question◊

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