Certified Management Accountant 2026 – 400 Free Practice Questions to Pass the Exam

Economic profit is defined as total revenue minus total costs, which encompasses both explicit costs—those directly incurred in the production of goods and services—and implicit costs, which represent the opportunity costs of using resources in one way rather than another. This comprehensive approach distinguishes economic profit from accounting profit, which only considers explicit costs.

In this context, the correct understanding of economic profit allows businesses and economists to evaluate the true profitability of an enterprise by taking into account all costs associated with production and decision-making, not just those that involve direct financial transactions. By measuring economic profit, organizations can assess the effectiveness of their resource allocation and make more informed strategic decisions.

In contrast, the other options provided do not incorporate the full scope of costs that economic profit considers, leading to an incomplete understanding of profitability.