Question

Economic profit is smaller than accounting profit because:

(A) accounting profit does not account for explicit and implicit costs.
(B) accounting profit accounts for explicit and implicit costs.
(C) economic profit accounts for explicit and implicit costs.
(D) economic profit does not account for explicit and implicit costs.

Answer 1

A) accounting profit does not account for explicit and implicit costs.

Step-by-step explanation:

• As accountant and economist view profits differently as they view costs differently and thus are useful in making the business decisions and the only difference that occurs is in terms of opportunity cost.

• As the economic profits are smaller and hs explicit ad implicit costs, as compared to the accounting profit.

• Gross Profit - (Operating Expenses + Taxes) = Accounting Profit.