Final answer:
Economic profits are sometimes less than accounting profits because economic profit includes both explicit and implicit costs, whereas accounting profit considers only the explicit costs.
Step-by-step explanation:
The difference between accounting profit and economic profit involves the costs considered in their calculation. Accounting profit is determined by subtracting only explicit costs, which are the direct, out-of-pocket expenses, from total revenue. In contrast, economic profit subtracts both explicit costs and implicit costs, such as the opportunity cost of capital, from total revenue. Implicit costs are the foregone benefits from the use of resources in their next-best alternative.
Given the inclusion of implicit costs in economic profit calculation, economic profits are sometimes less than accounting profits since they account for the full cost of resources used in production, including both the explicit and implicit costs. Therefore, when a business considers opportunity costs, it might see that it could have earned more profit in an alternative endeavor, reducing its economic profit compared to its accounting profit.