Economic profits are less than accounting profits because the calculation of economic profit
A)includes an amount for depreciation.
B)includes an explicit charge for risk taking.
C)includes the implicit charges for the use of capital owned by the firm and for risk taking.
D)includes the implicit charges for the use of capital owned by the firm and for income taxes.
E)is stipulated in regulations set forth by the Canada Revenue Agency.

Question

Quizplus · Accepted Answer

Economic profit includes both explicit and implicit costs, such as the cost of capital owned by the firm and the opportunity cost of risk taking. Accounting profit only takes into account explicit costs, such as expenses and taxes. Therefore, economic profits are generally lower than accounting profits.

Economic Profits Are Less Than Accounting Profits Because the Calculation