Overview
Economic profit evaluation is a critical concept in economics that helps businesses understand their true profitability. By considering both explicit and implicit costs, firms can make informed decisions about their operations and investments. This evaluation goes beyond simple accounting profit, pr...
Key Terms
Example: Wages paid to employees.
Example: Income foregone from not renting out owned property.
Example: Covering all costs, including opportunity costs.
Example: A business earning $10,000 with $8,000 in explicit costs and $1,000 in implicit costs has an economic profit of $1,000.
Example: Choosing to invest in stocks instead of bonds.
Example: A profit margin of 20% means $0.20 profit for every dollar of sales.
Related Topics
Cost Analysis
Examines how businesses assess and manage costs to improve profitability.
intermediateInvestment Strategies
Focuses on how to evaluate and choose investments based on potential returns.
advancedMarket Structures
Studies how different market environments affect business profitability.
intermediateKey Concepts
Explicit CostsImplicit CostsNormal ProfitEconomic Profit