Answer (A) is correct . Economic (pure) profit equals total revenue minus economic costs. Economic costs are defined by economists as total costs, which are the sum of outlay costs, and opportunity costs, which are the values of productive resources in their best alternative uses. The return sufficient to induce the entrepreneur to remain in business (normal profit) is an implicit (opportunity) cost. Net income as computed under generally accepted accounting principles considers only explicit costs, not such implicit costs as normal profit and the opportunity costs associated with not using assets for alternative purposes. Thus, net income will be higher than economic profit because the former fails to include a deduction for opportunity costs, for example, the salary forgone by an entrepreneur who chooses to be self-employed.
Answer (B) is incorrect because Both economists and accountants treat interest as a cost.
Answer (C) is incorrect because Economic profits will be less than net income.
Answer (D) is incorrect because Economic profits will be less than net income.
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