Question

Explain the difference between "business (or accounting) profit and economic profit. Is it possible for the business profit of a firm to be positive while its economic profit is negative? Explain.

Answer 1

Business profit includes total revenue - total explicit cost

Explicit cost is the cost of factor of production purchased from the market

whereas Economic profit is the total revenue - Explicit cost- implicit cost

Where Implicit cost is the opportunity cost of self owned factor of production

Thus Economic profit= Accounting profit-Implicit cost

Yes its possible when Economic profit to negative even when there is positive accounting profit when Implicit cost is greater than accounting profit