Accounting For Planning And Control Test 1 Practice

Economic profit equals accounting profit minus opportunity costs.

False True It can be negative or positive Depends on taxes

Correct Answer:

True

Explanation:

Economic profit reflects not only explicit costs but also the value of resources foregone in the next-best use. Accounting profit is revenue minus explicit costs. Economic profit goes further by subtracting implicit costs (the opportunity costs). So economic profit = revenue − explicit costs − implicit costs, which is the same as accounting profit minus opportunity costs. This makes the statement true regardless of the numbers: you can have positive or negative economic profit depending on whether revenue covers both explicit costs and the foregone alternatives. Taxes affect accounting profit, but the relation to opportunity costs remains the same.

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