1. Mr. Bernstein Module 52: Defining Profit November 2016
AP Economics
Mr. Bernstein
Module 52:
Defining Profit
November 2016

2. AP Economics Mr. Bernstein
Understanding Profit
Economists and Accountants differ on the definition of profit
Both explicit and implicit costs are used in calculating opportunity costs
Explicit costs are moneys actually paid out (ie rent, interest on debt, cost of raw materials, labor, utility bills, depreciation…”Accounting costs”)
Implicit costs do not require cash outlay (ie foregone salary, interest or rent when capital or the owner’s time and energy are used elsewhere…included in ”Economic costs”)

3. AP Economics Mr. Bernstein
Defining Profit
Profit = TR – TC
TR = P x Q
(precise definition of TC will be covered in Module 55)
Economists use p to represent profit
But Economists include both explicit and implicit costs in determining economic profit…

4. AP Economics Mr. Bernstein
Normal Profit
Economic Profit = zero is said to be “Normal Profit”
= TR - all costs (explicit AND implicit costs)
When a firm is earning a normal profit, it can do no better using resources in the next best alternative use
…so zero Economic Profit is not so bad!