Which of the following expressions is correct?
A)accounting profit = economic profit + implicit costs
B)accounting profit = total revenue − implicit costs
C)economic profit = accounting profit + explicit costs
D)economic profit = total revenue − implicit costs

Question

Quizplus · Accepted Answer

Economic profit is calculated by subtracting both explicit (direct) and implicit (indirect or opportunity) costs from total revenue. Accounting profit, on the other hand, only subtracts explicit costs from total revenue. Therefore, to find economic profit from accounting profit, one must also subtract the implicit costs. This makes option A correct: accounting profit = economic profit + implicit costs.

Which of the Following Expressions Is Correct