Using your own words, explain why economic profit is much more relevant to decision-making in a business than accounting profit. (This is a key understanding, make sure you can do it.)

Economic profit and accounting profit are both important concepts in business, but when it comes to decision-making, economic profit is often considered more relevant. Here's why:

1. Comprehensive Costs: Economic profit takes into account both explicit and implicit costs. Explicit costs are the direct costs of producing goods or services, like wages or raw materials. Implicit costs, on the other hand, are the opportunity costs of using resources in one way rather than in their next best alternative use. Accounting profit only considers explicit costs, so it doesn't give a full picture of the costs involved in a business decision.

2. Opportunity Costs: As mentioned, economic profit considers opportunity costs, which are crucial in business decision-making. For example, if a business invests in a project, it's not just the direct costs of the project that matter, but also what the business is giving up by not investing that money elsewhere. Accounting profit doesn't take this into account.

3. Long-Term Planning: Economic profit is also more useful for long-term planning. It helps businesses to understand the true profitability of their decisions by considering all costs and benefits, not just those that are immediately apparent. This can help businesses to make decisions that will be beneficial in the long run, even if they might not seem profitable in the short term according to accounting profit.

4. Realistic Profitability: Finally, economic profit provides a more realistic picture of a business's profitability. If a business is only breaking even in terms of accounting profit, but is making a positive economic profit, it's actually doing well because it's covering all its explicit and implicit costs. Conversely, a business could be making a positive accounting profit, but if it's not covering its implicit costs, it could actually be making an economic loss.

In conclusion, while accounting profit is useful for understanding a business's financial performance in terms of its explicit costs, economic profit provides a more comprehensive and realistic picture of a business's profitability, making it more relevant for decision-making.