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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.


Definitions:

Equity-Financed

A method of funding a company's operations by issuing shares to investors, rather than taking on debt.

Incremental Value

The additional value generated by undertaking a specific action or investment compared to not doing so.

Shares Outstanding

The total number of shares of a company's stock that are currently owned by all its shareholders, including share blocks held by institutional investors and restricted shares.

Equity-Financed

A method of funding a company’s operations by issuing shares of stock to investors rather than borrowing money.

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