Question

Which of the following expressions is correct?A. economic profit = total revenue - implicit costsB. accounting profit = economic profit + implicit costsC. accounting profit = total revenue - implicit costsD. economic profit = accounting profit + explicit costs

Answer 1

Answer:

B. accounting profit = economic profit + implicit costs

Explanation:

Implicit cost are the cost that already incurred but is not necessary to report such as opportunity cost. Whereas explicit cost are those expenses which involve the financial transaction and it is being paid.

Accounting profit is calculated by deducting the explicit cost from the revenue as follow.

* Accounting Profit = Revenue - Explicit cost

Economic profit is calculated by deducting both explicit and implicit costs from revenue.

Economic Profit = Revenue - Explicit costs - Implicit cost

So, using Accounting profit formula we conclude that

Economic Profit = (Revenue - Explicit costs) - Implicit cost

Economic Profit = *Accounting profit - Implicit costs

Accounting Profit = Economic profit + implicit cost