Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Total revenue minus total costs, including both explicit and implicit costs
B
Total revenue minus only explicit costs
C
Total revenue minus total fixed costs
D
Total revenue minus variable costs only
Understanding the Answer
Let's break down why this is correct
Answer
Economic profit is the difference between total revenue and total costs, where total costs include both explicit costs and implicit costs. Explicit costs are the actual expenses a business pays, 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 sales but spends $70,000 on ingredients and rent, the explicit profit is $30,000. However, if the owner could have earned $20,000 working elsewhere, the economic profit would be $10,000 when considering both explicit and implicit costs. This shows that economic profit gives a fuller picture of how well a business is doing by accounting for all costs involved.
Detailed Explanation
Economic profit is what you get when you subtract all costs from your total earnings. Other options are incorrect because This answer only looks at money spent, ignoring other important costs; This option only considers fixed costs, which are costs that don't change, like rent.
Key Concepts
economic profit definition
Topic
Understanding Economic Profit
Difficulty
easy level question
Cognitive Level
understand
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