What is the difference between accounting profit and economic profit? A. Economic profit only subtracts implicit costs from total revenue, while accounting profit only subtracts explicit costs. B. Economic profit subtracts both explicit and implicit costs from total revenue, while accounting profit only subtracts explicit costs. C. Accounting profit only subtracts implicit costs from total revenue, while economic profit only subtracts explicit costs. D. Accounting profit subtracts both explicit and implicit costs from total revenue, while economic profit only subtracts explicit costs.

Question

Zion Franklin

Business

12 August, 01:50

What is the difference between accounting profit and economic profit? A. Economic profit only subtracts implicit costs from total revenue, while accounting profit only subtracts explicit costs. B. Economic profit subtracts both explicit and implicit costs from total revenue, while accounting profit only subtracts explicit costs. C. Accounting profit only subtracts implicit costs from total revenue, while economic profit only subtracts explicit costs. D. Accounting profit subtracts both explicit and implicit costs from total revenue, while economic profit only subtracts explicit costs.

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Baron Reid · Answer 1

The correct answer is letter "B": Economic profit subtracts both explicit and implicit costs from total revenue, while accounting profit only subtracts explicit costs.

Explanation:

Economic profit subtracts costs of the operating activities of a firm from its revenues. Those costs are wages, inventory, raw materials, transportation costs, and overhead which are referenced as explicit costs. Besides, economic profit subtracts implicit costs like the costs incurred in owning a building.

Accounting profits only take into consideration explicit costs at the moment of subtracting them from the revenues.