Which of the following statements about economic profit is correct?

• A. A company can break even and meet operating costs without a loss when it earns economic profit.
• B. Economic profit is the same as accounting profit.
• C. A company earns economic profit only when its total revenue exceeds both explicit and implicit costs.
• D. A company earning zero economic profit is operating at a loss.

Answer: (C)

Verified step by step guidance

1. Understand the definition of economic profit: Economic profit is calculated as total revenue minus both explicit costs (direct, out-of-pocket expenses) and implicit costs (opportunity costs of resources).
2. Recall that accounting profit differs from economic profit because it only subtracts explicit costs from total revenue, ignoring implicit costs.
3. Analyze the statement 'A company can break even and meet operating costs without a loss when it earns economic profit.' Consider that earning economic profit means total revenue exceeds all costs, so breaking even would correspond to zero economic profit, not positive economic profit.
4. Evaluate the statement 'Economic profit is the same as accounting profit.' Since economic profit accounts for implicit costs and accounting profit does not, these two profits are generally not the same.
5. Consider the statement 'A company earning zero economic profit is operating at a loss.' Zero economic profit means total revenue exactly covers all explicit and implicit costs, so the company is breaking even, not operating at a loss.