Question

Economic profits are calculated by subtracting: a.explicit costs from total revenue. b.implicit costs from total revenue. c.implicit costs from normal profits. d.explicit and implicit costs from total revenue.

Answer 1

Answer:

The answer is D.

Explanation:

Economic profit is the difference between total revenue and the summation of explicit and implicit cost i.e Total revenue - (explicit cost + implicit cost).

Explicit cost is the normal accounting cost. The costs that are directly related to the production of goods e.g cost of sales, bad debt expense, depreciation etc.

Implicit cost is the cost of the action that was abadoned for the current action. The forgone action. For example, Mr A. has the option of doing business and chosing paid work. He decided to do business. The cost(salary) on the paid work is the implicit cost(opportunity cost)