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 implicit costs
C
Total revenue including opportunity costs
D
Total revenue minus taxes
Understanding the Answer
Let's break down why this is correct
Answer
Accounting profit is the difference between a company's total revenue and its explicit costs, which are the direct expenses like wages, rent, and materials. It does not consider implicit costs, which are the opportunity costs of using resources in one way instead of another. For example, if a business earns $100,000 in revenue and has $70,000 in explicit costs, its accounting profit is $30,000. However, if the owner could have earned $40,000 working elsewhere, the economic profit would be only $30,000 when factoring in the opportunity cost. Thus, while accounting profit shows how much money is made, economic profit gives a fuller picture of profitability by considering all costs, including what is foregone by not choosing the next best alternative.
Detailed Explanation
Accounting profit is found by taking total revenue and subtracting only the explicit costs. Other options are incorrect because This option confuses explicit costs with implicit costs; This choice mixes up total revenue with opportunity costs.
Key Concepts
Accounting profit
Topic
Economic Profits and Market Dynamics
Difficulty
easy level question
Cognitive Level
understand
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