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

Related Economics A Level answers

All answers ▸

Why is the marginal return curve twice as steep as the average revenue curve in microeconomics firm theory?


What are the determinants of Demand? What is the effect of a change in the determinants of demand?


Evaluate whether monetary policy is the best method of reducing inflation.


When answering my essay question, what could be the key evaluative points when talking about fiscal policy?