Question

Explain the concept of economic profit and loss. Next, briefly discuss how economic profit and loss differ from accounting profit and loss. Lastly, try to go a bit beyond the material in this module by anticipating how this concept will be useful in making predictions about when entrepreneurs should try to enter new growth markets while leaving declining markets. Your post should be two to three paragraphs long.

Answer 1

Answer - The economic profit or economic loss is the condition in which other than the explicit cost and revenue , implicit cost is also considered. The economic profit means revenue - explicit cost - implicit cost. If this figure comes negative , it will be economic loss.

In accounting profit or loss , only the explicit cost are considered and not the implicit. This is the difference between accounting profit and economic profit. Economic profit = accounting profit - implicit cost. If this figure is negative there is economic loss.

The opportunity cost is the implicit cost which is considered in economic profit and loss and helps in decision making. An alternative with a lower opportunity cost should always be chosen. Based on the oppotunity cost or what the person is sacrifing for choosing the alternative , the entry decisions are to be made.