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QUESTION 1.
EXPLAIN THE DIFFERENCE BETWEEN ACCOUNTING PROFIT AND
ECONOMIC PROFIT .
Profit is the revenue one gets after the costs have been
deducted.
ACCOUNTING PROFIT
Accounting profit is calculated according to generally
accepted accounting principles (GAAP).
It is a companys total revenue reduced by the explicit
costs of producing goods or services. These explicit costs
involve expenses such as the cost of raw materials,
employee wages, transportation, rent and interest on
capital.
Usually, accounting profit is limited to time periods, such
as a fiscal quarter or year.
Accounting profit computations are primarily used for
income tax purposes, financial statement preparations
and to review financial performance.
ECONOMIC PROFIT
Economic profit takes into consideration explicit costs and
implicit costs, while accounting profit only utilizes explicit costs.
For Example:
If a company had 250,000 in revenues and 150,000 in
explicit costs, its accounting profit would be100,000. The
same company also had 50,000 in implicit, or opportunity
costs. Its economic profit would be 50,000.
The economic profits are based on scarcity so they include
explicit costs (for payments to labor, land and capital) and
and
the
total
cost,
including
the
cost
of
the
opportunity.
2. Accounting profit can be defined as the revenue deducted
from the explicit costs, and economic profits, as the revenue
deducted from explicit and implicit costs.
3. When compared to economic profits, accounting profit is
calculated for a certain period of time.
4. Economic profit will always be lesser when compared to
accounting profits. In comparison with economic profit, the
accounting profit is only given during leap years.
5. Accounting profit can be called as the revenue obtained by a
firm after all the economic costs are met. A firm can be said to
REFERENCES
MONOPOLY PROFIT, AmosWEB Encyclonomic WEB*pedia,
http://www.AmosWEB.com, AmosWEB LLC, 2000-2016.
[Accessed: May 30, 2016].
www.economicshelp.org/blog/117/monopoly/profit-and-price-ina-monopoly
https://www.cliffsnotes.com/.../economics/monopoly/profitmaximization