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Economics 101: Accounting Profit | SterlingTerrell.net

Economics 101: Accounting Profit


What is accounting profit?

Accounting Profit is profit that accounts for only explicit costs.

In this way, accounting profit ignores implicit costs.

Said different, accounting profit ignores opportunity costs.

Formally, this looks like:

Profit = Total Revenue - Total Cost

Where:

Total Cost = Explicit costs only

Economic profit, however, accounts for both explicit and implicit costs.