Question

How to calculate economics profit??

Answer 1

Economic profit = Revenue - Explicit (Accounting) cost - Implicit (Opportunity cost)

Explicit costs are costs that are actually incurred by the seller, including materials, wages, rent, salary, interest expense and overhead cost.

Implicit costs are benefits given up by choosing one alternative over another. Examples include salary from a job given up in order to start a business, or interest income foregone by using personal savings for a business than keep it in savings account.

If economic profit is negative, a firm will not continue operation.