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 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 self-owned resources

Explanation: Economic profit shows whether resources could earn more in alternative uses. Positive economic profit indicates the current use is optimal.

3. Importance of Economic Profit

Details: Economic profit helps businesses make long-term decisions about staying in a market, resource allocation, and investment strategies.

4. Using the Calculator

Tips: Enter all monetary values in dollars. Include both obvious costs (explicit) and opportunity costs (implicit) for accurate calculation.

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

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

Q4: Why is economic profit important for decision making?
A: It reveals whether a business is making the most profitable use of all 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).