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Indu Dhiman posted an Question
May 05, 2021 • 19:11 pm
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30 points
30 points
- UGC NET
- Economics
If there are implicit costs of production then accounting profit will exceed economic profit explain it ?
if there are implicit costs of production then accounting profit will exceed economic profit explain it ?
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Reshma gupta![best-answer]()
1- explicit costs = payments to nonowners for resources The monetary payment a firm must make to an outsider to obtain a resource. 2. implicit costs = what self-employed resources could have earned elsewhere The monetary income a firm sacrifices when it uses a resource it owns rather than supplying the resource in the market; Equal to what the resource could have earned in the best-paying alternative employment. 3. Accoutin Profit / Economic Profit / and Normal Profit Profit - TR - TC a. normal profits = The payment made by a firm to obtain and retain entrepreneurial ability; The minimum income which entrepreneurial ability must receive to induce it to perform entrepreneurial functions for a firm. b. economic profits = TR - total opportunity costs definition: The total revenue of a firm less all its economic costs; Also called “pure profit” and “above normal profit.” Economic profits = TR - explicit AND implicit costs if economic profit = 0 called normal profit c. accounting profit = Total Revenue - Explicit Costs So according to question, of there is implicit cost only then, Economic profit= TR- implicit cost Accounting profit= TR because there is no explicit cost. So accounting profit would be greater than the economic profit.