A firm's economic profit is calculated as the difference between its total revenue (Price × Quantity) and its total costs, C(Q). This calculation yields economic profit specifically because the total costs, C(Q), include the opportunity cost of capital.

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A firm's economic profit is its total revenue minus its total costs. This concept is distinct from accounting profit because its cost calculation includes the opportunity cost of capital, which is the minimum return necessary to keep shareholders invested. Economic profit, therefore, is any additional profit earned beyond this required minimum return.

Economic Profit

To cite the ebook, use The CORE Econ Team 2023 The Economy 2.0: Microeconomics Open access e-text https://core-econ.org/the-economy/.

To cite a unit, use The CORE Econ Team 2023 The Economy 2.0: Microeconomics Open access e-text https://core-econ.org/the-economy/ Unit [unit number] (url).

CORE Econ - The Economy 2.0: Microeconomics

Economic Profit Calculation for a Differentiated Product Firm

An alternative method for calculating a firm's economic profit is to multiply the profit earned on each unit by the total quantity of units sold. The profit per unit is calculated as the difference between the selling price and the average cost of production.

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