Business profit is: ▪ the residual of sales revenue minus the explicit accounting costs of doing...

Business profit is: ▪ the residual of sales revenue minus the explicit accounting costs of doing business. ▪ a normal rate of return. ▪ economic profit. ▪ the return on stockholders' equity.

Expert Solution

Before defining the meaning of business profit we need to understand the formula of calculating the normal profit

It is the difference of total revenue earned by the company and the total cost that is generated by the company

The total cost includes two type of cost that are explicit cost and implicit cost

Explicit cost of those cost which are recorded

For example salary of workers,electric electricity bill etc

But implicit cost are those cost which are also called opportunity cost and these are not included

So a business can choose whether to to insert the implicit cost or not but generally it does

The business profit is equal to the economic profit because economic profit is also given by the difference of total revenue, explicit cost and implicit cost

It is not calculated by the residual sales revenue but by the total revenue by the company

Rate of return is expressed in percentage but business profit is expressed in absolute value

The same goes for return on stockholders equity as well

Hence the correct answer here is option C that is economic profit

Rahul Sunny answered 2 years ago

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