Suppose a firm earns an accounting profit. This means the firm also earns a positive economic profit.

Question

Quizplus · Accepted Answer

An accounting profit is simply revenue minus explicit costs (such as wages, rent, and materials). However, economic profit takes into account implicit costs (such as opportunity cost of the owner's time and resources) as well. If the economic profit is zero, it means the firm is just earning enough to cover all costs, including the opportunity cost of the owner's resources. Therefore, accounting profit can be positive while economic profit is zero or negative.

Suppose a Firm Earns an Accounting Profit