What is the difference between accounting and economic profit?

Accounting profit is revenues minus explicit costs, which include wages and machine rental among other things. But there are also implicit costs, or opportunity costs. These can arise because the factors of production used by the firm (labour and capital) could potentially be used to make more money when put to another use. For example, say I start a business and take all the accounting profit for myself. If my firm requires 40 hours per week of my labour time, and only makes £40,000 accounting profit, when I could have made £50,000 working 40 hours per week for another firm, the economic profit is actually -£10,000. 

JA
Answered by Jonathan A. Economics tutor

5170 Views

See similar Economics A Level tutors

Related Economics A Level answers

All answers ▸

Explain the effect on economic growth if a government increases income tax (ceteris paribus).


Assess how important government policies, other than taxation, are to a business when deciding where to locate its operations. (12)


A firm's long run total cost curve is given by TC(Q) = 1000Q - 30Q^2 + Q^3. Derive the expression for the long run average cost curve and sketch it. At what quantity is the minimum efficient scale?


Define a firm's shutdown point, and explain it intuitively using an example


We're here to help

contact us iconContact ustelephone icon+44 (0) 203 773 6020
Facebook logoInstagram logoLinkedIn logo

MyTutor is part of the IXL family of brands:

© 2026 by IXL Learning