Economic Profit and Accounting Profit

Economic cost is different from accounting cost.

In Economic cost includes not only the fixed and variable cost but also the opportunity cost of the factors of production involved in producing that particular goods

Thus, Economic cost = Fixed cost + Variable cost + opportunity cost

In economics economic cost is the total cost for a firm


Economic profit = Total Revenue (TR)- Economic Cost (Total Cost)

When the Total revenue = Total Cost, there is normal profit for the firm.

When TR is greater than TC, the firm is making abnormal profit.

When TR is less than TC, the firm is incurring losses.