Question

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 the above question and respond to at least two of your classmates' posts

this is micro economics

Answer 1

Accounting profit is calculated by deducting the total costs from the total revenue of the firm. In this case, the total cost consists of the explicit costs incurred by the firm in the form of operating costs, fixed costs, and salaries of workers etc. Explicit cost is a business expense that can be easily identified and accounted for and it is a direct payment made to others in the course of running a business. The examples are specified above.

Economic profit is also calculated by deducting the totao cost from total revenue. However, the total cost consists of both explicit and implicit costs. Implicit cost represent opportunity cost that use a company's internal resources without any explicit compensation for utilizing those resources. In other words, it is value of a firm's self owned resources and the opportunity cost is measured by taking into account the value of next best alternative use of those resources. For example, land owned by the firm etc.

The difference between accounting profit and economic profit is that accounting profit do not take into account the implicit costs or the opportunity cost. On the other hand, economic profit always take into account the opportunity costs or implicit costs.

A firm can earn a zero economic profit and still operate in the market. This is because economic profit already includes all the opportunity costs incurred by the firm and it already shows the efficient use of resources in a best possible way. In other words, implicit cost already covers what we have lost in terms of our opportunity cost. Thus, zero economic profit is a normal profit whereby the firm is still profitable.