Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Total revenue - Total explicit costs
B
Total revenue - Total implicit costs
C
Total revenue - Total variable costs
D
Total revenue - Total fixed costs
Understanding the Answer
Let's break down why this is correct
Answer
Accounting profit is similar to economic profit but focuses on different costs. While economic profit is calculated by subtracting total economic costs from total revenue, accounting profit is found by subtracting only explicit costs, like wages and materials, from total revenue. This means accounting profit does not consider opportunity costs, which are the potential benefits lost when choosing one option over another. For example, if a bakery makes $100,000 in sales but spends $80,000 on ingredients and salaries, its accounting profit is $20,000. In contrast, if the bakery owner could have earned $10,000 working elsewhere, the economic profit would be only $10,000 after accounting for that opportunity cost.
Detailed Explanation
Accounting profit is found by subtracting explicit costs from total revenue. Other options are incorrect because This answer confuses implicit costs with explicit costs; This option only considers variable costs, which change with production.
Key Concepts
Economic Profit
Accounting Profit
Total Revenue
Topic
Understanding Economic Profit
Difficulty
easy level question
Cognitive Level
understand
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