Looking for a tool to calculate economic profit for your business? Our economic profit calculator can help you easily determine the true profitability of your operations by factoring in both explicit and implicit costs.
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What is economic profit?
Economic profit is a concept that measures the profitability of a business after all costs have been accounted for, including both explicit and implicit costs. It is calculated by subtracting total costs from total revenue and taking into account opportunity costs, which are the benefits forgone by choosing one course of action over another.
Unlike accounting profit, which only accounts for explicit costs such as wages and materials, economic profit takes into account all relevant costs associated with operating a business.
Economic Profit Formula
- EC = TR – TOC
- TOC = EC + IC
- EC = Economic profit
- TR = Total revenue
- TOC = Total opportunity cost
- EC = Economic costs
- IC = Implicit costs
How to calculate economic profit?
To calculate economic profit, you first need to understand that it takes into account all expenses related to running a business. This includes not only explicit costs such as wages paid to employees or rent for office space but also implicit costs such as foregone opportunities or depreciation of assets.
The formula for calculating economic profit – subtract all explicit and implicit costs from the total revenue earned during a given period.