Final answer:
The correct answer is D. Income statement, which is a financial document summarizing a company's performance by subtracting costs and expenses from total revenue to show the profit or loss over a given period.
Step-by-step explanation:
Understanding Financial Statements in Business
The income statement is intended to demonstrate how much money a company is making or losing by subtracting all of the costs of production of goods that have been sold during the period and other expenses of running the company from the revenues generated by sales. Explicit costs are direct, out-of-pocket payments like wages and rents, necessary for the production of a company's goods or services.
Implicit costs, on the other hand, are indirect, non-paid opportunity costs, such as the cost of an entrepreneur's own time or the use of their assets. It is essential to consider both explicit and implicit costs to assess a firm's economic profit, which is the total revenue minus both types of costs. This is in contrast to accounting profit, which considers only the explicit costs and is used for tax purposes.
Moreover, the concept of profit includes interest and dividends for the use of financial capital (such as loans and equity investments) and is treated as a residual cost associated with entrepreneurship. These factors highlight the broader economic context within which the effectiveness of a firm's profitability is determined.