Microeconomics › Section G · Production, costs, and industry structure › Topic G.1
Explicit and implicit costs, accounting and economic profit
Ask an accountant whether a business is making money and you get one answer; ask an economist and you may get another - often lower. The difference is what the owner's own time and money could have earned elsewhere, and ignoring it quietly bankrupts people whose books look healthy.
In this topic
- Two kinds of cost
- Accounting profit versus economic profit
- Worked example: two profits for one designer
- Normal profit: the zero that is not failure
- Why the distinction matters
- Worked example: should the owner stay?
- Implicit costs beyond salary
- Sunk costs: a cost that is no cost at all
- Common mistakes to avoid
- Key takeaways
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