Which of the following "equalities" is true?a. Economic profit = total revenue - accounting profit.b. Economic profit = total revenue - implicit costs - explicit costs.c. Economic profit = total revenue - explicit costs - accounting profit.d. Economic profit = opportunity costs + accounting costs.
Question
Which of the following "equalities" is true?a. Economic profit = total revenue - accounting profit.b. Economic profit = total revenue - implicit costs - explicit costs.c. Economic profit = total revenue - explicit costs - accounting profit.d. Economic profit = opportunity costs + accounting costs.
Solution
The correct equality is b. Economic profit = total revenue - implicit costs - explicit costs.
Here's why:
Economic profit is a measure of the profitability of a venture after accounting for all costs, including both explicit and implicit costs.
Explicit costs are the direct cost of producing goods or services and include things like wages, rent, and materials. Implicit costs, on the other hand, represent the opportunity cost of using resources in one way rather than in their next best alternative use.
So, to calculate economic profit, you subtract both explicit and implicit costs from total revenue. This gives you a measure of profit that takes into account all costs, not just those that are directly related to production.
Similar Questions
1-3 Economic profit is the difference betweena.total revenue and the opportunity cost of all of the resources used in production.b.total revenue and the implicit costs of using owner-supplied resources.c.accounting profit and the opportunity cost of the market-supplied resources used by the firm.d.accounting profit and explicit costs.
Which of the following expressions is correct?Group of answer choicesaccounting profit = economic profit + implicit costsaccounting profit = total revenue − implicit costseconomic profit = accounting profit + explicit costseconomic profit = total revenue − implicit costs
Which of the following is true of economic costs?Multiple choice question.Economic costs are defined as the sum of all explicit costs.Economic costs are defined as the sum of all implicit costs.Economic costs are defined as the sum of explicit and implicit costs.Economic costs are defined as the difference between explicit costs and implicit costs.
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Profit computed using explicit costs as the only measure of costs is:Question 16Select one:a.explicit profit.b.accounting profit.c.implicit profit.d.economic profit.
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