Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Total revenue minus explicit costs
B
Total revenue minus total costs including opportunity costs
C
Total revenue plus implicit costs
D
Total revenue minus fixed costs
Understanding the Answer
Let's break down why this is correct
Answer
Economic profit is the difference between total revenue and total costs, where total costs include both explicit costs and implicit costs. Explicit costs are the direct expenses a business pays, like wages and rent, while implicit costs represent the opportunity costs of using resources in one way instead of another. For example, if a bakery makes $100,000 in sales but spends $70,000 on ingredients, rent, and salaries, it seems to have a profit of $30,000. However, if the owner could have earned $20,000 working elsewhere, the economic profit would actually be $10,000. This shows that economic profit gives a fuller picture of how well a business is doing by considering all costs, including what is given up to operate the business.
Detailed Explanation
Economic profit is what you earn after subtracting all costs, including what you could have earned elsewhere. Other options are incorrect because This answer only looks at money spent directly, not what you could have earned instead; This option adds costs instead of subtracting them.
Key Concepts
economic profit
Topic
Economic Profit Evaluation
Difficulty
easy level question
Cognitive Level
understand
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