Economic and Accounting Profits

User Generated

gq4422

Economics

Description

What is the difference between economic and accounting profits?  Provide Examples

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Explanation & Answer

Economic Profit = Revenue - (explicit costs+implicit costs)

                       = Revenue -(opportunity costs)

Accounting Profit = Revenue -explicit costs.

For example let revenue be $1,000,000

Explicit costs = 800,000

Had the company rented its unused premises , the implicit costs = 100,000

Accounting profit =1,000,000-800,000 =200,000

Economic Profit =1,000,000-800,000-100,000=100,000


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