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

5041 Views

See similar Economics A Level tutors

Related Economics A Level answers

All answers ▸

What is elasticity of demand


Explain how petrol and diesel cars may be a source of market failure?


Discuss the likely impact of a depreciation of the pound on the UK's economy.


Why is supply side policy used a lot in modern economies?


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:

© 2025 by IXL Learning