Economic profit

From Conservapedia

Jump to: navigation, search

In economics, economic profit is the term used for profit that is calculated by subtracting both explicit and implicit (opportunity) costs from total revenue. It is distinct from accounting profit in that it acknowledges that opportunity costs are an additional set of costs for which firms are responsible. An example of a cost that is included in the calculation of economic profit but not in the calculation of accounting profit is the opportunity cost to the manager of a firm who chooses to run the firm instead of working at another job. More simply, the idea of economic profit maintains that an entrepreneur will most likely choose to shut down his firm if he finds that he could earn more money by moving to another occupation.

Personal tools