Can accounting profit be positive and economic profit negative? Can accounting profit be negative and economic profit positive? Explain.

Accounting profit is the total revenue minus the explicit costs, which are the costs that the firm pays directly to various factors of production, such as wages, rent, and other expenses. On the other hand, the economic profit is the total revenue minus both explicit costs and implicit costs, which are the opportunity costs of the resources used by the firm.

To analyze this scenario, imagine a firm that has an accounting profit of \(200,000. This means its total revenue is greater than its explicit costs, which is a positive result. However, when we consider the implicit costs, such as the opportunity cost of the owner's time and effort, the economic profit may turn negative. For instance, if the opportunity cost is worth \)250,000 (for example, the owner could have earned this amount by investing in a different business), then the economic profit would be \(200,000 - \)250,000 = -$50,000, which is negative. This shows that accounting profit can be positive while the economic profit is negative.

It is not possible for accounting profit to be negative while economic profit is positive. If a firm has negative accounting profit, it means that its total revenue is less than its explicit costs, which indicates a loss in the business. Since economic profit includes both explicit and implicit costs, having a negative accounting profit would automatically result in a negative economic profit, which contradicts our assumption of a positive economic profit. In summary, it is possible for a firm to have a positive accounting profit and a negative economic profit when the opportunity costs of the resources used in the business are high enough to turn the economic profit negative. However, it is not possible for a firm to have a negative accounting profit and a positive economic profit, as a negative accounting profit means the business is making a loss, which would also result in a negative economic profit.