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Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383

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BuyFindarrow_forward

Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383
Textbook Problem

If economic profit equals accounting profit, what do implicit costs equal?

To determine

What happens to implicit cost if economic profit and accounting are equal.

Explanation

Accounting profit can be calculated by subtracting of explicit cost from total revenue.

Accounting profit=Total revenueExplicit cost        (1)

Economic profit can be calculated by subtracting both explicit costs and implicit costs from total revenue.

Economic profit=Total revenueExplicit costs+Implicit costs        (2)

If the implicit cost is zero, then the accounting profit and economic profit will become equal.

Example: If the implicit cost is $0, total revenue is $8,000, and the explicit cost is 6,000, then the value of accounting profit and economic profit can be calculated as follows:

Accounti

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