Question

Implicit cost is equal to

• A. Business profit minus economic profit
• B. Business profit plus economic profit
• C. Economic profit minus business profit
• D. Economic profit minus explicit cost.

Hint:

Write economic profit as revenue minus explicit cost minus implicit cost, then compare with business profit.

Answer 1

The Correct Option is A

Step 1: Implicit cost is the opportunity cost of resources the owner already possesses, such as their own capital or labour, and it never shows up in the accounting books.
Step 2: Because accounting profit ignores this hidden cost while economic profit deducts it, economic profit is always smaller than or equal to accounting profit by exactly the implicit cost.
Step 3: Rearranging this relation gives implicit cost as the gap between business profit and economic profit.
\[\boxed{\text{Business profit} - \text{Economic profit}}\]