Question

Accounting profits are typically
a. greater than economic profits because the former do not take explicit costs into account.
b. equal to economic profits because accounting costs include all opportunity costs.
c. smaller than economic profits because the former do not take implicit costs into account.
d. greater than economic profits because the former do not take implicit costs into account.

Answer 1

Answer:

d. greater than economic profits because the former do not take implicit costs into account.

Explanation:

Accounting profit is total revenue less total cost or explicit cost.

Explicit cost are costs that is actually incurred. They appear in the financial statements of a company.

Economic profit is accounting profit less implicit cost.

Implicit cost is also known as opportunity cost. It is the cost of the activity forgone in order to carry out another activity. For example, if I earn $100 working as a teaching assistant but resign to start my own business as a fashion designer where I earn $500, my opportunity cost is $100.

Accounting profit is usually greater than economic profit because it doesn't take into account implicit cost. Accounting profit can be equal to economic profit if implicit cost is zero.

I hope my answer helps you.