Asked by Hallie Adair on Jul 14, 2024
Verified
If a firm is earning negative economic profits,it implies
A) That the firm's accounting profits are necessarily zero
B) That the firm's accounting profits are necessarily positive
C) That the firm's accounting profits are necessarily negative
D) Economic profits alone cannot determine accounting profits
Economic Profits
The difference between total revenues and total costs, including both explicit and implicit costs, representing profits exceeding the opportunity costs of all resources used by a firm.
Accounting Profits
The net income of a company as calculated by subtracting total expenses from total revenues, in accordance with accounting principles.
Negative
A term used to describe values or balances that are less than zero, often used in financial contexts.
- Determine economic profitability by including both opportunity costs and explicit expenses.
- Comprehend the difference between accounting profit and economic profit.
Verified Answer
ES
Eliza SommersJul 18, 2024
Final Answer :
D
Explanation :
Economic profits consider both explicit and implicit costs, including opportunity costs, while accounting profits only consider explicit costs. Therefore, a firm can have positive accounting profits while having negative economic profits if the opportunity costs exceed the accounting profits.
Learning Objectives
- Determine economic profitability by including both opportunity costs and explicit expenses.
- Comprehend the difference between accounting profit and economic profit.