Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Implicit costs are not considered in economic profit calculations.
B
Implicit costs directly reduce accounting profit but not economic profit.
C
Implicit costs are the opportunity costs that are included in economic profit calculations.
D
Implicit costs are the actual cash expenses incurred by a business.
Understanding the Answer
Let's break down why this is correct
Answer
Implicit costs are the hidden costs that do not involve direct payment but represent the opportunity cost of using resources in one way instead of another. When evaluating a business's profitability, implicit costs help us understand the true economic profit, which is different from just looking at accounting profit. For example, if a business owner decides to run their own shop instead of working for a company that pays $50,000 a year, that lost salary is an implicit cost. To find economic profit, we subtract both explicit costs (like rent and salaries) and implicit costs from total revenue. This gives a clearer picture of how well the business is really doing, beyond just the money that comes in and out.
Detailed Explanation
Implicit costs are the costs of what you give up when you choose one option over another. Other options are incorrect because This answer suggests that implicit costs don't matter at all; This option confuses implicit costs with accounting profit.
Key Concepts
implicit costs
Topic
Accounting vs. Economic Profit
Difficulty
easy level question
Cognitive Level
understand
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