What is the relationship between economic and accounting profit?
A) Economic profit is equal to accounting profit.
B) Economic profit is greater than accounting profit.
C) Economic profit is less than accounting profit.
D) Economic profit may be equal to or less than accounting profit.
E) Economic profit may be equal to or greater than accounting profit.

Question

Quizplus · Accepted Answer

Economic profit is calculated by subtracting both explicit and implicit costs from total revenue, while accounting profit is calculated only by subtracting explicit costs from total revenue. Therefore, economic profit may be equal to or less than accounting profit, as it takes into account all costs (implicit and explicit), which may be higher than explicit costs alone.

What Is the Relationship Between Economic and Accounting Profit