Question

The difference between economic profit and accounting profit is that economic profit is calculated based on both implicit and explicit costs whereas accounting profit is calculated based on explicit costs only.

	True
	False

Answer 1

Ans)- The given statement is true.

Explanation: Economic profit is reffered as the total revenue of the firm (from sales) minus the costs of all inputs used as well as any opportunity costs. costs on all inputs reffered as explicit cost whereas opportunity cost refered as implicit cost i.e. Implicit cost represents a firm's opportunity cost of utilizing resources it already owns.

Economic profit = Total revenue - explicit costs - implicit costs

Accounting profit is reffered as the total revenue of the firm (from sales) minus the costs of all inputs used. i.e. includes only explicit costs.

Accounting profit = Total revenue - Explicit costs

Hence, the difference is only the implicit costs.