In the context of a company's financial performance, how do total costs affect the comparison between accounting profit and economic profit in the short run versus the long run?

Total costs play a crucial role in understanding the difference between accounting profit and economic profit. Accounting profit is calculated by subtracting total explicit costs, like wages and rent, from total revenue. In contrast, economic profit considers both explicit costs and implicit costs, which include the opportunity costs of using resources in one way instead of another. In the short run, a company might show high accounting profits but low or even negative economic profits if it does not account for opportunity costs, like the owner’s time or alternative investments. Over the long run, as businesses adjust their strategies and resources, total costs will influence both types of profit more significantly, often leading to a clearer picture of a company’s true financial health.