Question

Is Accounting profit smaller than Economic profit? If yes, why? If not, why not ? Define Accounting profit and economic profit.

Answer 1

No, Accounting Profit is greater than Economic Cost Since Accounting Profit would include only those costs which are expilictly incurred to earn revenue (whether explicit cost or implicit cost). In other words While calculating accounting profit opportunity costs are not considered whereas Economic Profit means the Profit derived at After taking into the consideration all the costs (explicit,implicit and Opportunity cost). So whenver the business has high Opportunity costs(which almost every business has) Accounting Profit would always be greater than economic profit

Accounting Profit is calculated taking into the account relevant GAAP and other standards whereas Economic profit is derived at according to the economic Principles Underlying.