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 measure of a company's profitability that considers both explicit costs, like wages and rent, and implicit costs, which include opportunity costs. Opportunity cost is what you give up when you choose one option over another, such as the income you could have earned if you invested your time or money elsewhere. In contrast, accounting profit only looks at explicit costs and does not take into account these hidden costs. For example, if a business earns $100,000 in revenue and has $70,000 in explicit costs, the accounting profit is $30,000. However, if the owner could have earned $20,000 working elsewhere, the economic profit would only be $10,000, showing how opportunity cost affects true profitability.
Detailed Explanation
Economic profit looks at all costs, including what you give up to make a choice. Other options are incorrect because Some might think economic profit is always higher than accounting profit; This option suggests that 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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