Profit

Profit = Total Revenue (TR) - Total Cost (TC)

Explicit costs = physical costs, made up of: Total fixed costs (TFC) + Total variable costs (TVC)

Accountants calculate profit using explicit costs only

Implicit costs = Opportunity cost

Economists calculate profit using explicit and implicit costs

If economic profit = 0, it is classed as a normal profit

If economic profit > 0 (positive), it is classed as a supernormal profit (abnormal profit)

If economic profit < 0 (negative), it is classed as subnormal profit (economic loss)

Normal profit = the minimum level of profit required to keep factors of production in their current use

If economic profits are below 0 it is a sign to pursue producing a different product due to opportunity cost (leave the market)

Normal profit is visible on graphs where Average Revenue (AR) = Average Cost (AC)

Supernormal profit is visible on graphs where Average Revenue (AR) > Average Cost (AC)

Subnormal profit is visible on graphs where Average Revenue (AR) < Average Cost (AC)