If accounting profit is $400,000 greater than economic profit, what do implicit costs equal?

 

Expert Answers

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To answer this, you have to remember the following definitions:

  • Accounting profit is the difference between total revenue and total explicit cost.
  • Economic profit is the difference between total revenue and the sum of explicit and implicit costs.

Looking at these definitions, you can see that the only difference between these is that implict costs are removed from accounting profit to get economic profit.  This means that the difference between economic profit and accounting profit is the same thing as implicit costs.  Therefore, the implicit costs in this example will be $400,000.

The difference between accounting profit and economic profit is always the same as the implicit costs.

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