Question

Accounting profits are typically a. greater than economic profits because the former do not take implicit costs into account. b. equal to economic profits because accounting costs include all opportunity costs. c. smaller than economic profits because the former do not take implicit costs into account.d. greater than economic profits because the former do not take explicit costs into account.

Answer 1

Answer:

The correct answer is option a.

Explanation:

Accounting profit is the difference between total revenue earned and total explicit costs incurred in the process of production. Explicit cost is the direct cost involved in the production process.

The economic profit is the difference between the total revenue earned and the total explicit as well as the implicit cost incurred. The implicit costs are the indirect cost or opportunity cost of production.

Since accounting profit does not take into account implicit costs, it is greater than economic profit.