Final answer:
Income is recognized under the cost-recovery method of revenue recognition when the cash received surpasses the costs of the product, which corresponds to option 'b'. This method is used where there is uncertainty in cash collection and is relevant in understanding accounting vs. economic profit.
Step-by-step explanation:
Under the cost-recovery method of revenue recognition, income is recognized when the cash received from the sale of the product is greater than the cost of the product. This corresponds to choice 'b' in the provided options. The cost-recovery method ensures that no profit is reported until all the costs have been recovered. This approach is cautious and is often used in situations where there is a high degree of uncertainty over the collection of cash.
The concepts of accounting profit and economic profit are relevant in understanding the differences in how profit is measured. Accounting profit is considered when looking at a company's financial viability in the shorter term and paying income taxes, whereas economic profit provides a longer-term view of a company's financial health, taking into account both explicit and implicit costs.