Future Business Leader Achievments (FBLA) Economics Practice Exam

Which of the following is a characteristic of economic profits?

1. They are always the same as accounting profits.

2. They consider opportunity costs.

3. They only account for explicit costs.

4. They do not influence business decisions.

The correct answer is: They consider opportunity costs.

Economic profits are characterized by the inclusion of opportunity costs, which represent the potential benefits that are foregone when a choice is made. This means that when calculating economic profits, businesses not only consider explicit costs—those that involve direct monetary transactions—but also implicit costs, which reflect the value of the next best alternative use of resources. In contrast to accounting profits, which only take into account explicit costs, economic profits provide a more comprehensive view of a business's performance by evaluating the total costs associated with a decision. This approach aids business leaders in making informed decisions, as it reflects the true cost of utilizing resources in one area over another. Understanding this difference is crucial for optimal decision-making in business strategy and resource allocation.