Answer to Question #131312 in Microeconomics for Zain

Question

The equilibrium rent on office space has just increased by

$500/month

Compare the effects on accounting profit and economic profit if

a. you rent your office space

b. you own your office space**

Answer 1

Accounting profit is determined for the required reporting period as the difference between the total income and expenses of the enterprise in all areas of activity. Economic profit is also calculated using the “Income minus Expense” formula, but the deductible costs additionally include the implicit hidden costs of the business.

a.

Accounting profit will decrease less than economic profit

b.

Accounting profit will increase more than economic profit