Asked by Robert Clark on May 28, 2024
Verified
Economic profits are calculated by:
A) taking the difference between total revenue and the sum of explicit and implicit costs.
B) taking the difference between total revenue and explicit costs only.
C) taking the difference between the total revenue and implicit costs only.
D) summing total revenue,explicit costs,and implicit costs.
Economic Profits
The disparity between the amount a business earns in total and the sum of its outright and inferred expenses.
Explicit Costs
Direct, out-of-pocket payments for goods and services that are used in the production of other goods and services.
Implicit Costs
The opportunity costs of using resources that a firm already owns, not involving direct monetary payment.
- Identify the differences between explicit and implicit costs and their relevance in understanding profits in economics and accounting.
Verified Answer
HH
Herbert Hannah Jr.May 28, 2024
Final Answer :
A
Explanation :
Economic profits take into account both explicit costs (out-of-pocket expenses) and implicit costs (opportunity costs such as forgone wages or interest on invested money). Therefore, option A, which takes the difference between total revenue and the sum of explicit and implicit costs, is the correct calculation for economic profits.
Learning Objectives
- Identify the differences between explicit and implicit costs and their relevance in understanding profits in economics and accounting.