TutorOn by Sanath Withanage

Question:

If there are implicit costs of production
(1) accounting profit will exceed economic profit.
(2) economic profit will always be zero.
(3) economic profit will exceed accounting profit.
(4) accounting profit will always be zero.
(5) economic profit and accounting profit will be equal.

Correct Answer:

(1)

Answer Explanation:

Accounting profit only deducts explicit (out-of-pocket) costs from total revenue. Economic profit deducts both explicit and implicit (opportunity) costs. Because economic profit subtracts an additional cost category, it will always be mathematically lower than accounting profit when implicit costs exist.

Topic: Costs of Production Year: 2017