Question

Total revenue minus only implicit costs is called __________.A. accounting profit. B. economic profit. C. opportunity cost. D. None of the above is correct.

Answer 1

Total revenue minus only implicit costs is called economic profit, which accounts for both explicit and implicit costs, contrasting with accounting profit that only deducts explicit costs.

Step-by-step explanation:

The total revenue minus only implicit costs is called economic profit. Accounting profit refers to the total revenue minus explicit costs—the difference between dollars brought in and dollars paid out. On the other hand, economic profit is total revenue minus total cost, which includes both explicit costs and implicit costs. Knowing the distinction between these two is important for understanding a business's financial health, as it pays taxes on accounting profit, but economic success is determined by its economic profit.

Example: To calculate economic profit, one would use the formula: Economic profit = total revenues - explicit costs - implicit costs. An example of this calculation would be if a business has total revenues of $200,000, explicit costs of $85,000, and implicit costs of $125,000, the economic profit would be -$10,000 per year.

Answer 2

The correct answer is letter "D": None of the above is correct.

Step-by-step explanation:

Economic profit is the difference between the revenue a firm earns from sales and the firm's total opportunity costs. Those opportunity costs imply taking into consideration both implicit and explicit costs. Economic profit is typically used for internal analysis.