Types of Profit- Old Version

Mr. Clifford introduces the concept of profit, distinguishing between accounting and economic profit. He humorously describes the rivalry between accountants and economists, emphasizing their different approaches to calculating profit. The video explains explicit and implicit costs, using Lebron James as an example to illustrate economic profit. It concludes with the concept of normal profit, where firms break even in competitive markets.

What is the main difference between accounting profit and economic profit?

• Accounting profit includes implicit costs, while economic profit does not.

• Economic profit is calculated by subtracting only explicit costs from total revenue.

• Economic profit includes both explicit and implicit costs, while accounting profit only includes explicit costs.

• Accounting profit is always higher than economic profit.

In the example of LeBron James opening a taco shop, what is considered an implicit cost?

• The cost of cheese and meat for the tacos.

• The rent for the taco shop.

• The wages paid to the workers.

• The salary LeBron could earn if he stayed in the NBA.

How is economic profit calculated?

• Total revenue minus both explicit and implicit costs.

• Total revenue minus implicit costs.

• Total revenue minus taxes.

• Total revenue minus explicit costs.

What does it mean if a business has zero economic profit?

• The business is not making any money at all.

• The business is only covering its explicit costs.

• The business's total revenue equals its explicit and implicit costs.

• The business is making a loss.

Why is zero economic profit considered normal in a competitive market?

• Because firms are always making a loss.

• Because firms are not interested in making a profit.

• Because firms cannot make more profit doing something else.

• Because firms are not able to cover their explicit costs.