Question

how do you calculate economic gain?

Answer 1

Step 1 : Meaning of Economic gain

Economic gain can be termed as economic profit. Economic profit is the difference between the total revenue received by a business and the total implicit and explicit costs of a firm. It is the extra profit left over after considering the next best alternative investment and can be either positive or negative in value.

Implicit cost means implied cost, notional cost. It represents an opportunity cost that arises when a company allocates internal resources towards a project without any explicit compensation for the utilization of resources.

Step 2 : Calculation of Economic Gain

Economic profit is the difference between accounting profit and implicit costs. Accounting profit is equal to difference between total revenues and explicit costs.

Accounting Profit = Total Revenues - Explicit costs

Economic profit = Accounting Profit - Implicit Costs