Asked by Tyree McDonald on Apr 24, 2024
Verified
Economic profits are calculated by subtracting
A) explicit costs from total revenue.
B) implicit costs from total revenue.
C) implicit costs from normal profits.
D) explicit and implicit costs from total revenue.
Economic Profits
The surplus generated from business activities after accounting for both explicit and implicit costs, including opportunity costs, representing above-normal returns.
Explicit Costs
Direct, out-of-pocket payments for costs of production, such as wages, rent, and materials, that a company incurs in conducting its business.
Implicit Costs
Costs that represent the opportunity cost of using resources that a business already owns, rather than explicit outlays of cash.
- Understand the concept of economic profits and how they are calculated.
- Analyze how firms calculate total cost and the impact of various costs on business profitability.
Verified Answer
DE
Daniela Encinosa8 days ago
Final Answer :
D
Explanation :
Economic profits are calculated by subtracting both explicit (direct out-of-pocket costs) and implicit (opportunity costs of resources) costs from total revenue to account for the full cost of doing business.
Learning Objectives
- Understand the concept of economic profits and how they are calculated.
- Analyze how firms calculate total cost and the impact of various costs on business profitability.