Unit 3 - Costs

  1. What is the definition of accounting profit?
    Accounting profit is the measure of profit used on business balance sheets. Accounting profit is the difference between total revenue and explicit costs but does not include implicit costs.
  2. What is the formula for accounting profit?
    Accounting Profit = Total Revenue - Explicit Costs
  3. What is normal profit?
    Normal profit is a payment made to the entrepreneur to retain his or her services in the business; it is the minimum income that the entrepreneur accepts to stay in the business

    Normal profit is an implicit cost.
  4. What is an economic profit?
    Economic profit is the difference between total revenue and the firm's combined total explicit and implicit costs.
  5. What is the formula for an economic profit?
    Total Revenue - (Total Explicit Cost + Total Implicit Cost)
  6. What makes an economic profit different from an accounting profit?
    Economic profit considers implicit costs and explicit costs. Accounting profit only considers explicit costs.
Card Set
Unit 3 - Costs
Unit 3 - Costs and Profits