What is the difference between accounting and economic profit?

  • Google+ icon
  • LinkedIn icon
  • 638 views

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. 

Jonathan A. GCSE Economics tutor, A Level Economics tutor, IB Economi...

About the author

is an online A Level Economics tutor with MyTutor studying at University College London University

Still stuck? Get one-to-one help from a personally interviewed subject specialist.

95% of our customers rate us

Browse tutors

We use cookies to improve your site experience. By continuing to use this website, we'll assume that you're OK with this. Dismiss

mtw:mercury1:status:ok