1
Q
Profit
A
Total Revenue - Total Cost
2
Q
Total Revenue
A
All the money the firm takes in from sales:
P x Q
3
Q
Total Cost
A
Comprises of implicit and explicit costs
4
Q
Explicit Cost
A
Cost that involves actually laying out money
5
Q
Implicit Cost
A
- Doesn’t require an outlay of money
- Measured by the dollar value of benefits that are forgone
6
Q
Accounting Profit
A
Business’s total revenue minus explicit cost and depreciation
7
Q
Economic Profit
A
Business’s total revenue minus opportunity cost of its resources; usually less than accounting profit
8
Q
Implicit Cost of Capital
A
Opportunity cost of the capital used by a business — income owner could have made from that capital had it been used in its next best alternative way
9
Q
Normal Profit
A
- Economic profit = 0
- Just high enough to keep a firm engaged in its current activity
- Firm with normal profit may have positive or negative accounting profit
