economic profit would be equal to accounting profit whenedit
Question
economic profit would be equal to accounting profit whenedit
Solution
Economic profit would be equal to accounting profit when there are no opportunity costs.
Here are the steps to understand this:
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Accounting Profit: This is the total revenue minus explicit costs. Explicit costs are the actual out-of-pocket expenses of the firm, like wages, rent, materials, etc.
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Economic Profit: This is the total revenue minus both explicit and implicit costs. Implicit costs are the opportunity costs of using resources already owned by the firm. They represent the income the firm could have earned by using its resources in the next best alternative way.
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When there are no opportunity costs, it means there are no implicit costs. In this case, the only costs to subtract from total revenue are the explicit costs.
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Therefore, when there are no opportunity costs, economic profit (total revenue - explicit costs - implicit costs) becomes the same as accounting profit (total revenue - explicit costs).
Similar Questions
What is normal profit and in what way is economic profit different from accounting profit?
1-2 Economic profita.is a theoretical measure of a firm’s performance and has little value in real world decision making.b.can be calculated by subtracting implicit costs of using owner-supplied resources from the firm’s total revenue.c.is negative when total costs exceed total revenues.d.is generally larger than accounting profit.
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.
A firm’s economic profit is always less than its accounting profit becauseGroup of answer choiceseconomic profit is always zero, no matter what kind of firm it is.accounting profit considers explicit costs, which economic profit does not.economic profit considers implicit costs, which accounting profit does not.accounting profit considers implicit costs, which economic profit does not.accounting profit is always positive, no matter what kind of firm it is.
Fill in the Blank QuestionFill in the blank question.Economic profit is the reward to residual claimants for assuming financial .
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