In microeconomics, economic profits are:

• A. the sum of all costs incurred by a firm
• B. the difference between total revenue and total explicit and implicit costs
• C. the difference between total revenue and total explicit costs only
• D. the total revenue earned by a firm

Answer: (B)

Verified step by step guidance

1. Step 1: Understand the concept of economic profit. Economic profit takes into account both explicit costs (direct, out-of-pocket expenses) and implicit costs (opportunity costs of resources owned by the firm).
2. Step 2: Recall the formula for economic profit, which is the difference between total revenue and the sum of explicit and implicit costs. This can be written as: \(\text{Economic Profit} = \text{Total Revenue} - (\text{Explicit Costs} + \text{Implicit Costs})\).
3. Step 3: Differentiate economic profit from accounting profit, which only subtracts explicit costs from total revenue: \(\text{Accounting Profit} = \text{Total Revenue} - \text{Explicit Costs}\).
4. Step 4: Recognize that the sum of all costs incurred by a firm includes both explicit and implicit costs, so economic profit accounts for all these costs, unlike accounting profit.
5. Step 5: Conclude that economic profit is best described as the difference between total revenue and total explicit and implicit costs, which reflects the true profitability considering opportunity costs.