Question

Profits equal _______.

a) revenues plus expenses, less taxes
b) the sales dollars that a business acquires, over time
c) the owner's annual salary
d) the funds available for business growth, after expense

Answer 1

Profit is equal to total revenue minus total cost. Accounting profit is the revenue minus explicit costs, while economic profit includes both explicit and implicit costs. For example, if a business has $1,000,000 in revenue and $600,000 in explicit costs, the accounting profit would be $400,000. If the implicit costs are $100,000, the economic profit would be $300,000.

Step-by-step explanation:

Profit is equal to total revenue minus total cost.

Accounting profit is the revenue minus explicit costs (such as salaries, rent, and supplies), while economic profit includes both explicit and implicit costs. Implicit costs are the opportunity costs of using resources, such as the owner's time and the cost of using owned equipment.

For example, if a business has $1,000,000 in revenue and $600,000 in explicit costs, the accounting profit would be $400,000 ($1,000,000 - $600,000). If the implicit costs are $100,000, the economic profit would be $300,000 ($1,000,000 - $600,000 - $100,000).