Question

How are profits and losses calculated? What is the difference between economic profit and accounting profit?

Answer 1

Answer: Profit and loss is calculated by subtracting total explicit costs from total revenue.

Economic profit is calculated by subtracting total implicit and and explicit costs from total revenue while accounting profit is calculated by subtracting only explicit cost from total revenue.

A. Economic profit

B. Accounting profit

C. Less

D. Cost

Explanation:

Profit and loss = Total revenue - Total explicit cost

If the value gotten is postive, it is a profit. If it is negative, it is a loss.

Accounting profit = Total revenue - Total explicit cost

Economic profit = Accounting profit - Accounting profit

Economic profit is always less than accounting profit because opportunity cost and explicit cost are substracted from total revenue. But to calculate accounting profit, only explicit cost is substracted from total revenue.

I hope my answer helps you.