Question

Economic profit differs from accounting profit in that it factors in the opportunity costs of a...

  1. Economic profit differs from accounting profit in that it factors in the opportunity costs of a decision. With this in mind, how would you explain the possibility of some venture having a negative economic profit but a positive accounting profit?
Business   Economics   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Ans. If a venture has a big opportunity cost then the economic profit can still be negative when accounting profit is positive.
Economic profit = Accounting Profit - Opportunity Cost

Suppose, CEO of Google leaves his jobs and starts a new venture which earns him a $20 million dollar in first year as per accounting profit but his opportunity cost i.e. his salary at Google was $50 million, so, his economic profit will be negative i.e. -$30 million. Thus, in books of accounts he is earning a profit but incurring an economic loss otherwise.

* Please don’t forget to hit the thumbs up button, if you find the answer helpful.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
An economic profit will always (LESS THAN / EQUAL TO / OR EXCEED)   accounting profit because...
An economic profit will always (LESS THAN / EQUAL TO / OR EXCEED)   accounting profit because an economic profit includes implicit costs and an accounting profit does not. This means that if the economic profit is positive, the accounting profit is (POSITIVE / NEGATIVE / ZERO) and when the economic profit is negative, the accounting profit is (POSITIVE / NEGATIVE / ZERO). RAJIV: What would you expect to happen to the number of businesses operating in a market over time...
Explain the difference between "business (or accounting) profit and economic profit. Is it possible for the...
Explain the difference between "business (or accounting) profit and economic profit. Is it possible for the business profit of a firm to be positive while its economic profit is negative? Explain.
1. How does accounting profit differ from economic profit? Explain why accounting profit is more useful...
1. How does accounting profit differ from economic profit? Explain why accounting profit is more useful for paying your taxes while economic profit is more useful for deciding whether you should continue to stay in business. Give an example of an implicit cost and an example of implicit revenue.
Which of the following is true about economic profit? a. It the same as accounting profit....
Which of the following is true about economic profit? a. It the same as accounting profit. b. It is defined as revenue minus accounting costs. c. It is defined as revenue minus opportunity costs. d. When a firm has accounting profits, it must have economic profits as well.
Which of the following is true? A Economic profit is in general less than accounting profit....
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.
1. Describe the impact of explicit and implicit costs in calculating accounting profit and economic profit....
1. Describe the impact of explicit and implicit costs in calculating accounting profit and economic profit. 2. Assume you are a business manager for a firm that does a few million dollars worth of business each year. Select the profit measure (accounting profit or economic profit) you believe provides the most helpful information in making business decisions, and explain why? Note: once again, no hedging your bet here by selecting both measures or combinations of both measures. :-) Select one...
"Accounting profits" differ from "economic profits" in that accounting profits: A.  Ignore the explicit costs of production...
"Accounting profits" differ from "economic profits" in that accounting profits: A.  Ignore the explicit costs of production while economic profits include them. B.  Include all the costs of production while economic profits do not. C.  Include the opportunity costs of firm-owned resources while economic profits ignore them. D.  Ignore the opportunity costs of firm-owned resources while economic profits include them. E.  Include the explicit costs of production while economic profits ignore them.
Accounting vs Economic Profit You own and operate a bike store. Each year, you receive revenue...
Accounting vs Economic Profit You own and operate a bike store. Each year, you receive revenue of $200,000 from your bike sales, and it costs you $100,000 to obtain the bikes. In addition, you pay $20,000 for electricity, taxes, and other expenses per year. Instead of running the bike store, you could become an accountant and receive a yearly salary of $40,000. A large clothing retail chain wants to expand and offers to rent the store from you for $50,000...
In the long-run competitive equilibrium firms: will make an economic profit and an accounting profit have...
In the long-run competitive equilibrium firms: will make an economic profit and an accounting profit have positive economic profits but no accounting profits make an accounting profit but no economic profit have their accounting profits driven to zero Refer to the data below. If the market price is $6, how many units would a profit-maximizing firm produce? Total cost of 1 unit = $3 Total cost of 2 units = $6 Total cost of 3 unit = $11 Total cost...
Then, select one of the following types of costs: sunk costs, opportunity costs, or accounting costs,...
Then, select one of the following types of costs: sunk costs, opportunity costs, or accounting costs, and think about a scenario where this type of cost was important for informing decision making. Think about another scenario where this type of cost was important for furthering stakeholder agendas. By Day 3 Post the following: Provide an explanation of a scenario of how the type of cost you have selected (sunk, opportunity, or accounting) may be used to further stakeholder agendas.
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT