Asked by Carly Koncz on Jul 21, 2024
Verified
Which of the following statements is true?
A) Economic profits ignore implicit costs.
B) Economic profits include implicit costs.
C) Accounting profits include all of the opportunity costs.
D) Economists consider sunk costs in their decision making.
Implicit Costs
Additional costs that do not appear on the financial statements of a company. These costs include items such as the opportunity cost of capital.
Economic Profits
Profits that exceed the opportunity costs of all resources used by the firm, including both explicit and implicit costs.
Sunk Costs
Costs that cannot be recovered. They are unavoidable even in the long run.
- Understand the concept of economic profits, including implicit and explicit costs.
Verified Answer
AB
Amara BarksJul 26, 2024
Final Answer :
B
Explanation :
Economic profits take into account both explicit and implicit costs, while accounting profits only consider explicit costs. Implicit costs are opportunity costs that arise from using resources in one way instead of another, such as the opportunity cost of using funds to start a business instead of investing them in the stock market. Therefore, statement B is true.
Learning Objectives
- Understand the concept of economic profits, including implicit and explicit costs.