What is Economic Profit?
- Economic profit is the difference between the revenue realized by a producer and the opportunity cost of production.
How Do I Remember It?
- Think of economic profit as the “true profit” of a company. It’s like the profit that considers not only the explicit costs (like rent and wages) but also the implicit costs (like the opportunity cost of using resources elsewhere).
Real World Example
- For example, let’s say a company earns $1 million in revenue in a year. Its explicit costs, including rent, wages, and materials, amount to $800,000. Additionally, the owner could have earned $50,000 working elsewhere. The economic profit would be $1 million (revenue) – $800,000 (explicit costs) – $50,000 (implicit cost) = $150,000.
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By: Ryan Aquino
