Question

Explain how economic profit and accounting profit would be impacted if the owner of a firm owns a building the firm uses to manufacture its products, verses leasing a building to manufacture its products

Answer 1

Economic profit and accounting profit are two different terms. Accounting profit does not include opportunity cost or implicit cost. Only explicit costs are included in the accounting profit.

If firm own building:

In this case, there is opportunity of cost building. it will be included in economic profit calculation but not in accounting profit calculation. Thus, Accounting profit will be less than economic profit.

Leased building:

In this case implicit cost is absent, thus both profits are likely to be same.