Question

2. Distinguish between accounting profit and ,economic profit, and normal profit. Explain

Answer 1

Answer-Accounting profit is a type of profit which is determined by the GAPP, accounting profits include the explicit cost only and the accounting profit is used for the income tax and financial performance whereas economic profits are profit which is determined by the economic principles, it includes explicit and opportunity cost and economic profit are used to determine market entry, stay or exit and in case of normal profit, normal profit is also known as pure profit for the firm, it is a type of profit which is over and above the implicit cost plus implicit cost. As fas as firm is earning normal profit ,firm can stay in the market or can enter in the market.