Asked by Emily Ratliff on Jul 29, 2024
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The difference between economic profit and accounting profit is that economic profit is calculated based on both implicit and explicit costs whereas accounting profit is calculated based on explicit costs only.
Economic Profit
The difference between total revenue and total costs, including both explicit and implicit costs, representing the true profitability of a company.
Accounting Profit
The difference between the total revenue received from sales and the total explicit costs of a business.
Explicit Costs
Direct payments made to others in the course of running a business, such as wages, rent, and materials.
- Acknowledge the necessity of accounting for both overt and covert costs in the realm of business economics.
- Identify the differences between economic and accounting profits by recognizing the inclusion of implicit costs.
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Learning Objectives
- Acknowledge the necessity of accounting for both overt and covert costs in the realm of business economics.
- Identify the differences between economic and accounting profits by recognizing the inclusion of implicit costs.
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