economic profits are calculated by subtractingSolutionEconom

economic profits are calculated by subtracting?

Solution

Economic Profit is calculated by subtracting Explicit and Implicit cost from Total Revenue.

Explicit cost is direct cost while Implicit cost is indirect cost.

Implicit cost is referred to as opportunity cost. While explicit cost is referred as out of the pocket cost.

At the time of calculation of Economic Profit both explicit as well as implicit cost are used.

Accounting profit does not consider implicit cost.

Economic Profit = Accounting profit - Implicit cost.