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8 February, 12:31

Which of the following terms is correct?

a. Economic profit takes into account all costs involved in producing a product.

b. Economic profit always exceeds accounting profit.

c. Accounting profit is not relevant in preparing the firm's financial statement.

d. Accounting profit is the same as economic profit.

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  1. 8 February, 15:41
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    a. Economic profit takes into account all costs involved in producing a product.

    Explanation:

    Numeral A is the only correct option in the question.

    Economic profit takes into account all costs: explicit costs and implicit costs. Explicit costs are the monetary costs that we incurr when we run a business, such as wages, rent, and utilities.

    Implicit costs are the opportunity costs that we incurr, in other words, what we gave up to run the business. For example, if you had a job, and quit to set up the business, your implic cost is the salary that you used to earn.
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