Question

Profit often describes the financial benefit realized when revenue generated from a business activity exceeds the expenses, costs, and taxes involved in sustaining the activity in question. It can be seen as the difference between the revenue received from the sale of an output and the (implicit and explicit) costs of all inputs used.

Define Accounting Profit and Economic Profit

What is the difference between Accounting Profit and Economic Profit?

Does a profitable have to earn a positive economic profit or can it still be profitable while earning a zero economic profit?

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.

The difference between accounting profit and economic profit is that economic profit includes both explicit and mplicit costs, whereas, accounting profit includes only explicit costs.

A firm earning zero economic profit is making normal profit.so it can be profitable even if it is earning zero economic profit.