Part 1What is economic profit? Part 1Economic profit _______. A. is equal to total revenue minus all of the costs of production that are paid either by cash or check B. is equal to total revenue minus the opportunity cost of production C. is equal to the return earned on average by an entrepreneur D. can never be a negative amount

Question

Part 1What is economic​ profit? Part 1Economic profit​ _______. A. is equal to total revenue minus all of the costs of production that are paid either by cash or check B. is equal to total revenue minus the opportunity cost of production C. is equal to the return earned on average by an entrepreneur D. can never be a negative amount

BlackTom AI · Accepted Answer

Restating the question and options to anchor what we’re evaluating:
Part 1: What is economic profit? Part 1 Economic profit _______.
A. is equal to total revenue minus all of the costs of production that are paid either by cash or check
B. is equal to total revenue minus the opportunity cost of production
C. is equal to the return earned on average by an entrepreneur
D. can never be a negative amount

Option A analysis: This option describes accounting profit, which deducts only explicit costs (outlays paid in cash or obligated by contract). Economic profit, however, requires subtracting both explicit costs and implicit costs (the opportunity costs of all resources used). Therefore A is incomplete and misleading for the concept of economic profit.

Option B analysis: This is the core definition of economic profit. By subtracting the opportunity cost of production from total revenue, it accounts for all costs, explicit and implicit. This aligns with standard economic theory distinguishing economic profit from accounting profit. The reasoning is that even if explicit costs are paid, the true cost of using resources includes their next-best alternative use, which is what opportunity cost captures.

Option C analysis: Saying it is the return earned on average by an entrepreneur confuses economic profit with a measure like average return or a performance metric for a specific entrepreneur. Economic profit focuses on the difference between revenue and all opportunity costs, not simply the average return earned by an entrepreneur.

Option D analysis: The statement that economic profit can never be negative is false. If total revenue falls short of both explicit and implicit costs, economic profit is negative. In scenarios where resources could earn a better alternative use, economic profit can indeed be negative, signaling that the venture may not be allocating resources efficiently.

Putting it together: Comparing the options shows that B uniquely captures the comprehensive subtraction of opportunity costs from total revenue, which is the hallmark of economic profit. The other choices either describe only accounting costs (A), misstate the concept (C), or make an incorrect claim about negativity (D).

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Which of the following best describes the implication of a firm earning zero economic profit?

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