Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Economic profit includes opportunity costs, while accounting profit does not.
B
Accounting profit is always higher than economic profit.
C
Economic profit is the profit after taxes, while accounting profit is before taxes.
D
Accounting profit accounts for all costs, while economic profit only considers explicit costs.
Understanding the Answer
Let's break down why this is correct
Answer
The primary difference between accounting profit and economic profit lies in how each type of profit is calculated. Accounting profit is the money a business makes after subtracting all explicit costs, like wages, rent, and materials. In contrast, economic profit takes into account both explicit costs and implicit costs, which are the opportunity costs of using resources for one purpose instead of another. For example, if a bakery makes $100,000 in sales and pays $70,000 in costs, its accounting profit is $30,000. However, if the owner could have earned $20,000 working elsewhere, the economic profit would be only $10,000 after considering that opportunity cost.
Detailed Explanation
Economic profit looks at all costs, including what you give up to make money. Other options are incorrect because Some people think accounting profit is always more than economic profit; This option confuses profit types.
Key Concepts
economic profit
Topic
Accounting vs. Economic Profit
Difficulty
easy level question
Cognitive Level
understand
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