economic profit vs. accounting profit

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My Business My Business Venture Venture Comparing Economic Profit Comparing Economic Profit to Accounting Profit to Accounting Profit

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My Business VentureMy Business Venture

Comparing Economic Profit to Comparing Economic Profit to Accounting ProfitAccounting Profit

Total Revenues – Total Costs = Total Revenues – Total Costs = Profit or LossProfit or Loss

Price X Quantity Price X Quantity Normal ProfitNormal Profit: Opportunity Cost : Opportunity Cost

of Entrepreneur. of Entrepreneur.

My Business VentureMy Business Venture

TOTAL REVENUE

2000 BURRITOS SOLD @ $5.00 = $10,000

TOTAL EXPENSES

CITY PERMIT $2000

PAYMENT TO FORMER STUDENT TO MAKE BURRITOS $3000

PAYMENT TO REDDY RENTS FOR EQUIPMENT: (Capital, Fridge, Cash register, Utensils, ect.)

$2000

Payment to Mpls. Industrial Food Supply $1000

TOTAL COST $8000

ACCOUNTING PROFITS:

(total revenue – total cost)

$2000

Did I really make accounting profits? What did my accountant forget?

It turns out I could have worked for the summer at Sears selling refrigerators

SEARSNET WAGES $2900

FORGONE INTEREST ON START UP CAPITAL

$100

Total Implicit Costs $3000

EconomicProfit

Implicit costs(including a

normal profit)

ExplicitCosts

Accountingcosts (explicit

costs only)

AccountingProfit

Ec

on

om

ic (

op

po

rtu

nit

y) C

os

ts

TOTAL

REVENUE

Profits to anEconomist

Profits to anAccountant

ECONOMIC COSTS

WHAT WAS THE OPPORTINITY COST OF RUNNING MY BUSINESS?

DID I MAKE AN ECONOMIC PROFIT WITH PHAT BURRITOS?

Accounting Profit $2000

Implicit Costs $3000

Economic Profit - ($1000)

THE ENDTHE END