Answer :
Final answer:
Economic profits are determined by subtracting both explicit and implicit costs from total revenue. This differs from accounting profit, which deducts only explicit costs.
Explanation:
Economic profits are calculated by subtracting both explicit and implicit costs from total revenues. This means that the correct answer to the student's question is that economic profits are total revenue minus total cost, which includes both explicit and implicit costs. It is important to distinguish between economic profit and accounting profit; the former considers both explicit and implicit costs, while the latter only deducts explicit costs from total revenue.
Economic profits are defined as total revenue minus total cost.
Revenue is the total amount of money earned by a company from its sales. Profit is the share of money that remains after deducting the company's operational costs, debts, taxes, and any other expenses incurred in the pursuit of revenue.
Hence, we can calculate profit as:
Profit = revenues - total cost
Profitability may be increased in four major areas. These include cost reduction, increased turnover, increased productivity, and increased efficiency.
We can also enter new market segments or create new products or services.
Close cost management can drive your profitability. Most organizations may find ways to reduce waste; nevertheless, it is critical not to save costs at the price of the quality of your products and services.
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