Which of the following statements is correct? a. accounting profit equals the firm's revenues minus all of its costs, implicit and explicit. b. economic profit equals the firm's revenues minus its explicit costs. c. accounting profit is typically larger than economic profit. d.

C. Accounting profit is typically larger than economic profit.

Explanation:

Accounting profit is a mathematical measure of profit measurement that takes into account explicit revenue and costs such as rent, equipment, interest, etc. Economic profit is a measure of profit measurement that takes into account explicit and implicit costs. The implicit costs refer to the opportunity cost of the venture. Thus, opportunity cost takes into consideration whether the business is making the most of its earning potential.

 For example, a screw company has its explicit costs (material, taxes, etc.) and the implicit cost, which is what the business owner fails to earn in another economic activity to use the money at the screw factory. He could, for example, have invested money in the financial market to make a profit. This represents the opportunity cost of the business. If the opportunity cost is high, it may not be worth keeping the screw factory. Thus, accounting profit is greater than economic profit, because economic profit takes opportunity cost into account.

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