Can someone clarify? Thanks!
economic includes opportunity (implicit) cost in addition to accounting profit.
Economic profit is usually smaller. Includes normal profit (profit that could have been made elsewhere), economic depreciation (not accounting dep) anything that is an implicit and explicit cost
Thanks! So… can i think of it like this: Costs: Accounting = explicit Economic = explicit + implicit Thus makes: Accounting profit > Economic profit due to the differential in cost?
yep
My mom pays me $20 to mow the lawn which takes an hour, but I need to fork out $10 to get biofuel to fill my gas-powered lawnmower. It takes me about 2 hours to mow the lawn because its a huge honkin place that my mom has. I really would rather be giving Adriana Lima an oil massage at my supermodels-only massage shop in town. Those girls give me $200/hour, and it only costs me about $3 to get their favorite scented oils to rub into their supple skin. If I mow the lawn for Mom, my accounting profit is $20-$10 = $10 for two hours of work. If I were able to give Adriana her massage, I’d have an accounting profit there of $200*2 - $3 = $397 (not including any tips). Now… if I do what Mom wants, my economic profit is: $10 - $397 = ($387) = (mom’s accounting profit) - (opportunity cost = massage accounting prift) If I do what I’d really rather do, my economic profit is: $397 - $10 = $387 So the economic profit tells me how I should spend my time (which activity brings in the most profit relative to what I have to give up to get it), whereas accounting profit just tells me whether I have more money at the end than the beginning, without talking about whether this was the best choice of how to make money with my time and available resources.
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I see, I will never miss this question again… The moral of the story: one should always check with mom (for any implicit cost in not obeying her) before massaging Alessandra Ambrioso. You guys rock. Thanks!
True… but I must admit that Moms get a lot of stuff for a bargain from offspring because of the discounted value of future services (unemployment insurance, future babysitting, and possibly a lump sum at expiration). 