Micro CHAPTER 3.4:

CHAPTER SUMMARY

When you think of a business's profit, you probably think of something called the accounting profit. This is calculated as all the revenue (money received) of the business minus all the explicit costs of running it. Explicit costs are all the things a business has to spend money on to operate. If a business earns $150,000 and revenue and has $90,000 in costs, we would say it has an accounting profit of $60,000.

However, economists also think about profit in a different way. They also consider implicit costs, which are the opportunity costs of operating the business. For example, if I quit my job where I earn $75,000 to start my own business, that $75k would be included in my calculation of what we call economic profit. If that business earns a profit or $60,000, then my economic profit is actually -$15,000, a negative amount. Negative economic profit means that I could earn more profit doing something else. Positive economic profit means that I could not earn more money doing something else instead. When economic profit is zero, we call this a normal profit.

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