Asked by Lucas Castro on May 02, 2024
Verified
Which of the following definitions is correct?
A) Accounting profit + economic profit = normal profit.
B) Economic profit - accounting profit = explicit costs.
C) Economic profit = accounting profit + implicit costs.
D) Economic profit - implicit costs = accounting profits.
Economic Profit
The difference between a firm's total revenue and its total costs, including both explicit and implicit costs, reflecting the financial gain exceeding the opportunity cost of resources used.
Accounting Profit
Net income of a company is determined by deducting total expenses from total revenues, in line with established accounting norms.
Implicit Costs
The opportunity costs associated with a company's resources that are not directly paid out in cash but represent foregone alternatives.
- Comprehend the relationship between economic profit, accounting profit, and normal profit.
Verified Answer
ZK
Zybrea KnightMay 02, 2024
Final Answer :
C
Explanation :
Economic profit equals accounting profit plus implicit costs. Explicit costs are already taken into account in accounting profit. Normal profit is the minimum amount of profit necessary to keep a business running in the long run, but it is not equal to the sum of accounting profit and economic profit. Option A is incorrect. Option B is incorrect. Option D is incorrect.
Learning Objectives
- Comprehend the relationship between economic profit, accounting profit, and normal profit.