Question

Use an appropriate example from your experience to distinguish between accounting profit, economic profit, and normal profit. Based on your analysis, does accounting profit or economic profit determine how entrepreneurs allocate resources between different business ventures

Answer 1

The real profit earned by a company during a particular period is Accounting Profit; Economic Profit means the company is earning the abnormal profit, i.e. profit in excess of what is needed to cover the expenses. Normal Profit arises when Total Revenue (TR) = Total Cost (TC).

Distinguish between accounting profit, economic profit, and normal profit.

The company's net income for a certain accounting year is known as the accounting profit. Economic profit is the balance that remains after all expenditures and revenues have been subtracted. The smallest amount of profit required for its survival is called normal profit.

How entrepreneurs allocate resources between different business ventures?

Sales revenue less explicit costs, such as materials and labor costs, etc., equal accounting profit.

The accounting profit you could have possibly made in another (or alternative) company venture is the same as normal profit. This enables us to accurately calculate the opportunity cost of the ongoing business project. Since a firm's owner would eventually shut it down if a typical profit were not being made, economists consider normal profits as costs. A regular profit is a cost because the entrepreneur must maintain the business to make a profit.

Accounting profit less any additional implicit costs to the business equals economic profit. This includes the capacity for entrepreneurship, forfeited interest, lost wages, etc.

Entrepreneurs transfer resources amongst various business initiatives based on economic return. Economic profit indicates whether a business venture is making more money than average (more than other alternative business ventures on average), and if it is more than zero, more resources will go toward this activity. When economic profit is negative, the opposite is true.

Learn more about accounting profit, economic profit, and normal profit: brainly.com/question/13182085

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