Profit (from total)
Profit (from average)
Definition – What is economic profit?
Economic profit is the method of calculating profit including both explicit and implicit costs.
Where accounting profit is used primarily for tax purposes, economic profit is used to determine the current value.
Formula – How to calculate economic profit
Economic Profit (from total) = Revenue – Costs
Economic Profit (from average) = (Average Revenue – Average Cost) x Quantity
From Total – Revenue is $500,000 and costs are $400,000.
Profit (from total) = $500,000 – $400,000 = $100,000
From Average – Average Revenue is $100, average costs are $35, and quantity is 400.
Profit (from average) = ($100 – $35) x 400 = $65 x 400 = $26,000
Sources and more resources
- Wikipedia – Profit (economics) – A description of profit in the economic sense.
- Khan Academy – Economic profit vs. accounting profit – Part of a larger course on microeconomics. This video details the differences between accounting and economic profit and how they are calculated.
- Investopedia – What is the difference between accounting and economic profit? – Another comparison of economic and accounting profit.
- jodiecongirl (YouTube) – Microeconomics practice problem – Accounting Profit versus Economic Profit – A video overviewing the difference between accounting and economic profit.