1. What is Economic Profit?

Economic Profit is the difference between a firm's total revenue and the sum of its explicit and implicit costs. Unlike accounting profit, it considers opportunity costs (implicit costs) of using resources.

2. How Does the Calculator Work?

The calculator uses the Economic Profit formula:

Where:

• \( Total\ Revenue \) — All income from sales (USD)
• \( Explicit\ Costs \) — Direct, out-of-pocket expenses (USD)
• \( Implicit\ Costs \) — Opportunity costs of resources (USD)

Example: Economic Profit = 100000 - 80000 - 15000 = 5000 USD

3. Importance of Economic Profit

Details: Economic profit helps determine whether resources could be better utilized elsewhere. A positive value indicates the business is outperforming alternative uses of its resources.

4. Using the Calculator

Tips: Enter all monetary values in USD. Include all revenue streams and account for both direct costs and opportunity costs.

5. Frequently Asked Questions (FAQ)

Q1: How is economic profit different from accounting profit?
A: Accounting profit only considers explicit costs, while economic profit includes both explicit and implicit opportunity costs.

Q2: What does negative economic profit mean?
A: Negative economic profit suggests the business would be better off reallocating its resources to other opportunities.

Q3: What are typical implicit costs?
A: Common implicit costs include owner's time, capital invested, and use of owned property/equipment.

Q4: When is economic profit zero?
A: Zero economic profit (normal profit) occurs when revenue exactly covers all costs including opportunity costs.

Q5: Why is economic profit important for decision making?
A: It helps businesses evaluate whether they're creating value beyond all costs, including the cost of capital.