Economic profit is the profit generated by the production and operation of a company or individual after deducting the opportunity cost.
Accounting cost is an explicit cost, which can be measured in money and reflected in accounting accounts. In addition to accounting costs, there is also a hidden cost.
Implicit cost is often not recognized by managers, and it is very different from explicit cost, that is, accounting cost. Generally speaking, hidden costs cannot be directly reflected on the books, so it is difficult to measure them accurately.
For example, opportunity cost belongs to hidden cost. Economic cost is the sum of explicit cost and implicit cost.
Namely: economic cost = accounting cost+hidden cost; Economic profit = accounting profit-opportunity cost (both hidden cost and opportunity cost are positive).
Extended data:
First, the economic cost:
Economic cost is the economic cost of the project, which refers to the economic cost paid by the national economy for the construction and operation of the project, that is, all the material resources invested, including the costs borne by relevant departments and the costs spent by private individuals.
Economic costs generally include investment costs, operating costs and heterodyne costs.
Economic cost is relative to financial cost. It has three obvious characteristics: macro, that is, it reflects the macro-economy, and it is measured from the standpoint of the country, at least from the standpoint of the region.
The reduction of national economic income and the distribution direction of various resources caused by the implementation of a project; The variability of national income, that is, determining the economic cost of a project is based on the increase or decrease of national income.
It is not transferred by the payment of money or the increase or decrease of cash flow. Therefore, all kinds of taxes, loans and their repayment, depreciation, subsidies from relevant departments, etc. It does not belong to the category of economic cost.
Opportunity cost is the scale, that is, the opportunity cost of scarce resources and (foreign exchange) resources of the project is the valuation scale.
Second, the economic profit:
Economic profit refers to the factors that exclude the owner's investment and distribution to the owner. The difference between the net assets at the end of the period and the net assets at the beginning of the period can be expressed as the return on invested capital minus the cost of capital and then multiplied by the amount of capital.
Generally speaking, there are three main reasons for generating economic profits.
The first is risk. Risk refers to the possibility of an event, especially an unfavorable event. The greater the possibility of an event, the greater the risk. Because most people tend to avoid risks.
Given the expected income, people are more willing to accept relatively stable income.
In enterprise management activities, the decision-making effect is full of risks, so in order to make people willing to take certain risks, there must be certain economic profits to compensate.
The second reason is innovation, that is, manufacturers provide new products, introduce new production methods and new processes, adopt new raw materials, open up new markets, establish new sales methods and organizations, and so on, so as to obtain economic profits.
In fact, it is people's pursuit of economic profits that makes innovations such as new products emerge one after another, and the whole economy develops forward.
The third reason is monopoly or imperfect competition, that is, a few manufacturers monopolize the production and sales of a product in a certain market. At this time, the monopolist can obtain economic profits by limiting production and raising prices.
In addition, monopolists restrict new entrants into the industry by certain means to maintain their monopoly position, thus preventing economic profits from flowing out of the industry, or preventing other manufacturers from entering the industry to share economic profits.