Question

Which is greater -- economic or accounting profit? Why?

Answer 1

Accounting profit is total revenue minus explicit costs. Explicit costs are those that require monetary payments like rent, salary, repairs etc.

Economic profit is total revenue minus (explicit costs + implicit costs). Implicit costs do not require actual monetary payments. Implicit costs are opportunity costs. Opportunity cost is the value of the next best alternative

Accounting profit is higher. Economic Profit = Accounting profit - implicit costs. Only after subtracting implicit costs from accounting profit, we get economic profit.