For Most Firms, the Major Difference Between Accounting Profit and Economic

question 8

Multiple Choice

For most firms, the major difference between accounting profit and economic profit is that

• A) explicit and implicit costs are included in the accounting profit while only explicit costs are included in economic profit.
• B) accounting profit omits the salaries of managers, and therefore, it is generally greater than economic profit.
• C) accounting profit is based on opportunity cost, whereas economic profit is based on market transactions.
• D) accounting profit does not consider the opportunity cost of the firm's equity capital and, therefore, generally overstates economic profit.

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Definitions:

Advertising

The act of promoting products, services, or brands through various forms of media to attract consumer interest or awareness.

Product Differentiation

The technique of making a product or service stand out from others in the industry to appeal more to a chosen target market.

Barriers To Entry

Factors that prevent new firms from entering and competing in imperfectly competitive industries.

Market Share

The proportion of the total sales or output produced in a market by a single company, often used as an indicator of competitiveness.