Question

Economic profits are:a.less than accounting profits if implicit costs are greater than zero.b.less than accounting profits even if implicit costs are zero.c.greater than accounting profits if implicit costs are greater than zero.d.greater than accounting profits even if implicit costs are zero

Answer 1

Answer:

option (a) is correct.

Explanation:

Economic profits refers to the profits which comes out after deducting the implicit costs and explicit costs from the total revenue.

Whereas the accounting profits takes into the effect of explicit costs only.

Implicit cost refers to the loss of money income by choosing some other alternative. It is also known as the opportunity cost.

Explicit costs refers to the costs that are incurred for operating or running a business.  

Accounting profit = Total revenue - Explicit costs

Economic profit = Total revenue - Explicit costs - Implicit costs

Therefore, if the implicit costs are greater than zero then the economic profits is less than the accounting profits.