Question

What are the differences between economic and accounting profit? Why is this important when discussing economic concepts?

Answer 1

Accounting profit is the bookkeeping profit. Accounting profit= (Firm's total revenue)-(Monetary cost a firm pay)

Economic profit is less than accounting profit. As it includes opportunity cost. Economic profit=(Firm's total revenue)-(Accounting cost)-(opportunity cost)

For doing business economic profit is concerned while taking a decision. When opportunity cost is high enough then firm incurs a loss. But if they consider only accounting profit they may overlook the loss. So this difference is important in economic concept.