Question

The difference between economic profit and accounting profit is that economic profit is calculated based on both implicit and explicit costs whereas accounting profit is calculated based on explicit costs only. a. TRUE b. FALSE

Answer 1

Answer:

True

Explanation:

Economic profits takes into account the impact of both the explicit costs and implicit costs. Accounting profit only considered the impact of explicit costs.

Explicit costs refers to the costs which are incurred for operating a business. It  includes all the expenses for doing the transactions and can be measured in monetary terms.  

Implicit costs are also defined as the opportunity costs. Opportunity costs refers to the foregone benefit that could be obtained from the next best alternative.

Economic profit = Total revenues - Explicit costs - Implicit costs

Accounting profit = Total revenue - Explicit costs