Question

Which of the following is true?

A Economic profit is in general less than accounting profit.

B In the long run, firms in a competitive market makes zero accounting profit

C In the long run, firms in a competitive market makes positive economic profit

D Accounting profit does not take into account opportunity cost.

Answer 1

Option D i.e. Accounting profit does not take into account opportunity cost.

Economic profit is total revenue minus explicit and implicit (opportunity) costs. In contrast, accounting profit is the difference between total revenue and explicit costs. It does not take opportunity costs into consideration, and is generally higher than economic profit. Accounting profit is a company's total earnings, calculated according to generally accepted accounting principles (GAAP). It includes the explicit costs of doing business, such as operating expenses, depreciation, interest and taxes.