Which of the following is most likely to be true of economic and accounting profits?

• A. Accounting profit is usually less than economic profit because it excludes explicit costs.
• B. Economic profit and accounting profit are always equal for any firm.
• C. Economic profit is usually less than accounting profit because it includes implicit costs.
• D. Economic profit does not consider opportunity costs, while accounting profit does.

Answer: (C)

Verified step by step guidance

1. Step 1: Understand the definitions of accounting profit and economic profit. Accounting profit is calculated as total revenue minus explicit costs (actual monetary payments). Economic profit is total revenue minus both explicit and implicit costs (including opportunity costs).
2. Step 2: Recognize that explicit costs are direct, out-of-pocket expenses, while implicit costs represent the opportunity costs of using resources owned by the firm (such as the owner's time or capital).
3. Step 3: Since economic profit subtracts both explicit and implicit costs, it accounts for more costs than accounting profit does.
4. Step 4: Therefore, economic profit is generally less than accounting profit because it includes additional costs (implicit costs) that accounting profit ignores.
5. Step 5: Use this understanding to evaluate the given statements and identify that the statement 'Economic profit is usually less than accounting profit because it includes implicit costs' is the most accurate.