Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Economic profit considers opportunity cost, while accounting profit does not.
B
Economic profit is always greater than accounting profit.
C
Economic profit includes only explicit costs.
D
Economic profit is calculated without considering any costs.
Understanding the Answer
Let's break down why this is correct
Answer
Economic profit is the money a business makes after considering all costs, including both explicit costs, like wages and rent, and implicit costs, which are the opportunity costs of using resources for one option instead of another. In contrast, accounting profit only looks at explicit costs and is usually higher because it ignores these opportunity costs. For example, if a bakery makes $100,000 in sales but has $70,000 in explicit 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 subtracting this opportunity cost. Understanding this difference helps businesses make better decisions by considering all possible costs and benefits of their choices.
Detailed Explanation
Economic profit looks at all costs, including what you give up to make a choice. Other options are incorrect because Some people think economic profit is always higher than accounting profit; This option suggests economic profit only counts direct costs.
Key Concepts
opportunity cost
Topic
Understanding Economic Profit
Difficulty
easy level question
Cognitive Level
understand
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