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# What is economic profit and accounting profit with the information given?

Price=\$20, Quantity=400units, Unit cost=\$15, implicit cost=\$4,000

### 2 Answers by Expert Tutors

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The "economic profit" is a way of incorporating opportunity cost into your decision making. So in your example; "implicit costs" would imply that the subject had sacrificed an opportunity that amounted to a numerical addition of \$4,000 of profit he had shot down in favor of the current course of action; or what we see here as the "Accounting profit"

So although you can calculate the accounting profit as:
"AccountingProfit=(Total Revenue-Total Expenses)" --> (\$8000-\$6000)--> \$2000;

That number is misleading because his economic profit; or including the \$4,000 opportunity lost would change the economic profit to

EconomicProfit=(AccountingProfit-Opportunity Cost)--> (\$2000-\$4000)--> -2.000
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Accounting Profit is equal to total revenue minus explicit costs:

(\$20 - \$15) × 400 = \$2,000

Economic Profit = Total revenue - Total economic cost
Total economic cost = Explicit costs (firm’s actual cash payments for inputs) + implicit costs (opportunity costs of non-purchased inputs, such as entrepreneur’s time or money)

\$2,000 - \$4,000 = - \$2,000