Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Total Revenue - Total Costs
B
Total Revenue + Total Costs
C
Total Revenue x Total Costs
D
Total Revenue / Total Costs
Understanding the Answer
Let's break down why this is correct
Answer
Economic profit is calculated by taking the total revenue and subtracting both the explicit costs and the implicit costs. Total revenue is the money a business earns from selling its goods or services. Explicit costs are the direct expenses, like wages and rent, while implicit costs represent the opportunity costs of using resources for one purpose instead of another. For example, if a bakery makes $100,000 in revenue, spends $70,000 on ingredients and wages, and could have earned $20,000 doing another job, the economic profit would be $100,000 minus $70,000 minus $20,000, which equals $10,000. This shows how much better off the bakery is than if it had chosen a different option for its resources.
Detailed Explanation
To find economic profit, you subtract total costs from total revenue. Other options are incorrect because Adding total costs to total revenue doesn't show profit; Multiplying total revenue by total costs doesn't make sense for profit.
Key Concepts
total revenue
Topic
Economic Profit Evaluation
Difficulty
easy level question
Cognitive Level
understand
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