Accounting profit — Social Studies definition
Revenue less specified accounting expenses.
Where it is taught
- Firms, Competition, Market Power & Profit — Economic Foundations & Market Decisions, Government, Civic Participation & Economics, Grade 12
In use
Accounting profit and economic profit differ because economic analysis includes relevant opportunity costs.
Firms, Competition, Market Power & Profit
Questions using accounting profit
Problem 1
Invented period: 100 units sold at $5; accounting costs $420; owner’s forgone alternative income $60 is not included in those costs.
Calculate revenue, accounting profit, and economic profit.
Answer and explanation
Revenue is $500; accounting profit is $80; economic profit under the supplied definitions is $20. The calculation includes the $60 forgone income once. It does not establish cash-flow timing, future demand, or all social effects. If an opportunity cost were already in the cost measure, subtracting it again would be an error.
Multiply price by quantity.
Subtract stated accounting costs.
Subtract the additional opportunity cost once.
Response criteria
- Explain the relevant institution or economic concept accurately; show correct calculations where needed.
- Connect supplied evidence and stated assumptions to an explained conclusion.
- Compare feasible options and their effects on different people without stereotypes.
- Identify a limitation, tradeoff, uncertainty, or condition that qualifies the conclusion.