Types of Profit

Economic Profit = TR - (explicit + implicit)
- focused on whether resources are used efficiently
Accounting Profit = TR - explicit cost
- focused on what the business earned on paper
Neg Economic Profit
- The business is not covering its opportunity costs
- it could earn more doing something else with its resources
- Implication: The business is using resources inefficiently. It might want to shut down or change strategy
- P < ATC (Q); MR (Q) = MC (Q)
Zero Economic Profit
- The business is covering all explicit and implicit cost
- You’re doing just as well as your next best alternative
- Implication: This is called normal profit. You’re not losing out, but you’re not gaining extra either
- P = ATC (Q); MR (Q) = MC (Q)
Positive Economic Profit
- The business is covering all costs and more
- You’re doing better than your next best alternative
- Implication: This signals success and attracts competition in the long run (especially in perfectly competitive markets
- P > ATC (Q); MR (Q) = MC (Q)

Other