Economic profit — Social Studies definition

Revenue less all relevant economic costs, including applicable opportunity costs.

Where it is taught

In use

Accounting profit and economic profit differ because economic analysis includes relevant opportunity costs.

Firms, Competition, Market Power & Profit

Questions using economic profit

Problem 1

Why can accounting and economic profit differ?
Answer and explanation

Economic analysis includes relevant opportunity costs that may not appear as accounting expenses. In the invented case, subtracting the additional $60 opportunity cost from $80 accounting profit leaves $20. Definitions must avoid double counting.

Problem 2

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.

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