Economic Profit Calculator

What Is Economic Profit?

Economic profit measures true business performance by subtracting both explicit costs (cash outlays) and implicit costs (opportunity costs) from total revenue. Unlike accounting profit, it answers whether a venture earns more than its next-best alternative use of resources.

Economic Profit Formula

$$\text{Economic Profit} = \text{Total Revenue} - \text{Explicit Costs} - \text{Implicit Costs}$$

Explicit costs include rent, wages, materials, and equipment. Implicit costs capture forgone income, such as salary you give up by running a business instead of working elsewhere. Compare with our Accounting Profit Calculator and Economic Value Added Calculator for corporate valuation context.

Frequently Asked Questions

What is the difference between accounting profit and economic profit?

Accounting profit only subtracts explicit, recorded expenses. Economic profit also subtracts implicit opportunity costs, giving a fuller picture of whether a business truly creates value.

What are examples of implicit costs?

Foregone salary, interest on owner-invested capital, rental value of owner-occupied property, and time spent on the business that could earn income elsewhere are common implicit costs.

Can economic profit be positive when accounting profit is negative?

Rarely. Usually accounting profit is higher because it ignores implicit costs. If implicit costs are very large, economic profit can be negative even when accounting profit looks positive.

Why is economic profit important for entrepreneurs?

It helps decide whether starting or continuing a business beats alternative careers or investments. A positive accounting profit with negative economic profit suggests the resources could earn more elsewhere.

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What Is Economic Profit?

Economic Profit Formula

Frequently Asked Questions

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