Question

What is the primary difference between accounting profits and economic profits? 1. Economic profits require the exchange of money; accounting profits do not. 2. Accounting profits ignore implicit costs; economic profits consider them. 3. Accounting profits only occur when money is made; economic profits can occur when money is lost. 4. Economic profits focus on money; accounting profits focus on all types of capital. Russ owns a fried chicken stand that operates at the local beach. In calculating how much he earns from his business, Russ notices a difference between his economic and accounting profits. Why would Russ' economic profits differ from his accounting profits?

Answer 1

2. Accounting profits ignore implicit costs; economic profits consider them.

A reason why Russ' accounting and economic profit differed is because implicit cost or economic cost was added to cost in the calculation of economic profit.

Step-by-step explanation:

Accounting profit is total revenue less total cost.

Economic profit is accounting profit less implicit cost or opportunity cost.

Because economic profit also includes opportunity cost as part of costs, it is usually smaller than its accounting profit.

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