Chapter 9, Problem cWYWL

To determine

To differentiate:

Between accounting profit and economic profit and why is economic profit the correct basis for decisions

Concept Introduction:

Economic profit: The economic profit a firm is calculated by deducting total revenue from total cost. The total costs consists of both implicit and explicit costs, explicit cost is the ordinary costs of the firm like rent, salaries to the employees etc… on the other hand implicit cost also known as imputed cost describes as the opportunity cost of anything

Accounting profit: The accounting profit of a firm calculated by deducting explicit costs from the total revenue of the firm, the explicit costs are the ordinary costs of the firm such as rent, salaries to the employees and etc…