Economic Profit – Definition & Examples

Definition: Total revenue minus both explicit costs (out-of-pocket payments) and implicit costs (opportunity costs).

Detailed Explanation

Economic profit differs from accounting profit by including opportunity costs. If your business earns $100K accounting profit but you could earn $120K salary elsewhere, your economic profit is -$20K. Zero economic profit means you're earning exactly your opportunity cost—competitive markets drive economic profit to zero.

Real-World Example

A restaurant earns $50K accounting profit. But the owner's time is worth $70K and invested capital could earn $30K elsewhere. Economic profit is $50K - $70K - $30K = -$50K. Economically, the restaurant is losing money.

AP Economics Relevance

Economic vs. accounting profit is essential on AP Micro. Zero economic profit is the long-run competitive equilibrium.

Category: Microeconomics

How this guide is built

EconArena pairs each definition with exam relevance, a real-world example, a quick diagnostic, and related games or tools so students can move from reading the concept to practicing it.

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How to Remember It

Total revenue minus both explicit costs (out-of-pocket payments) and implicit costs (opportunity costs). A useful definition should do more than name the concept. Try to describe Economic Profit – Definition & Examples in your own words, give one real-world example, and name one situation where confusing it with a related term would lead to the wrong answer. That habit is especially helpful for AP, IB, and introductory college economics.

Where It Shows Up

This term can appear in graphs, multiple-choice questions, short-answer explanations, and everyday economic news. Use the linked practice pages and games to see how the idea behaves when assumptions change, incentives shift, or a policy choice affects consumers, firms, workers, or governments.