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 (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 of goods/services
• Explicit Costs — Direct, out-of-pocket payments (wages, rent, materials)
• Implicit Costs — Opportunity costs of using owner's resources

3. Importance of Economic Profit

Details: Economic profit helps determine whether resources could be more profitably deployed elsewhere. A positive economic profit indicates the business is outperforming alternative investments.

4. Using the Calculator

Tips: Enter all monetary values in dollars. Include all revenue streams and consider both obvious and hidden costs when calculating implicit 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 a negative economic profit mean?
A: Negative economic profit suggests the business would be better off investing resources elsewhere.

Q3: What are examples of implicit costs?
A: Owner's forgone salary, return on personal funds invested, rental income from owned property used in business.

Q4: Can economic profit be higher than accounting profit?
A: No, economic profit is always equal to or less than accounting profit because it includes more costs.

Q5: Why is economic profit important for decision making?
A: It reveals whether a business is truly creating value beyond all alternative uses of its resources.