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, economic profit considers opportunity costs, providing a more comprehensive view of a business's true profitability.

2. How Does the Calculator Work?

The calculator uses the Economic Profit formula:

Where:

• Accounting Profit — Total revenue minus explicit costs
• Implicit Costs — Opportunity costs of using resources owned by the firm

Explanation: Economic profit reveals whether resources could be more profitably deployed elsewhere, while accounting profit only shows book profitability.

3. Importance of Economic Profit

Details: Economic profit helps businesses make better long-term decisions by considering all costs, including the potential returns from alternative uses of resources.

4. Using the Calculator

Tips: Enter accounting profit (revenue minus explicit costs) and implicit costs (opportunity costs) in USD. Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between economic and accounting profit?
A: Accounting profit only considers explicit monetary costs, while economic profit also includes implicit opportunity costs.

Q2: Can economic profit be negative?
A: Yes, negative economic profit means resources could earn more in alternative uses.

Q3: What are examples of implicit costs?
A: Owner's time, capital invested, building space that could be rented out.

Q4: Why is economic profit important for decision making?
A: It shows whether a business is truly creating value above all possible alternative uses of its resources.

Q5: How does economic profit relate to normal profit?
A: When economic profit is zero, the business is earning exactly its opportunity costs (normal profit).