Question

Economic profits are less than accounting profits because the calculation of economic profit:

a) includes an amount for depreciation.
b) includes an explicit charge for risk taking.
c) includes the implicit charges for the use of capital owned by the firm and for risk taking.
d) includes the implicit charges for the use of capital owned by the firm and for income taxes.
e) is stipulated in regulations set forth by the canada revenue agency

Answer 1

Economic profits are lower than accounting profits because economic profit considers both explicit and implicit costs, while accounting profit only considers explicit costs. Implicit costs include the opportunity cost of using capital and a charge for risk-taking.

Step-by-step explanation:

Economic profits are less than accounting profits because the calculation of economic profit includes both explicit and implicit costs, while accounting profit only considers explicit costs.

Implicit costs include the opportunity cost of using capital owned by the firm and an explicit charge for risk-taking. These costs reduce economic profit, resulting in it being lower than accounting profit.