Economic Profit (or Loss)

Economic profit (or loss) is the difference between a firm's total revenue and its total economic costs. Economic costs include all the costs of production, including the opportunity cost of capital. Economic profit is also known as "pure profit" or "normal profit."

Economic profit is important because it measures the profitability of a firm after taking into account all of its costs, including the opportunity cost of capital. This is in contrast to accounting profit, which only measures the difference between a firm's total revenue and its explicit costs.

There are a number of factors that can affect a firm's economic profit, including the price of its products, the cost of its inputs, and the level of competition in the market. If a firm is able to sell its products at a high price and keep its costs low, it will earn a high economic profit. Conversely, if a firm is unable to sell its products at a high price or if its costs are too high, it will earn a low or negative economic profit.

Economic profit is an important concept for understanding the profitability of a firm. It is also a key factor in determining the allocation of resources in the economy.