What Is the Difference Between Accounting Profits and Economic Profits

question 50

Essay

What is the difference between accounting profits and economic profits? Which of the two concepts is more appropriate for explaining decisions made by entrepreneurs? Explain.

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Definitions:

Proportional

A relationship between two quantities where the ratio remains constant.

Payroll Taxes

Charges assessed on employers and their workers, based on a percentage of the compensation paid to employees.

Worker

An individual who performs services or labor, usually in exchange for compensation, within an economy.

Employer

An individual or organization that hires and pays people to perform specific jobs.