# Economic Profit Calculator

## About Economic Profit Calculator (Formula)

An Economic Profit Calculator is a tool used to calculate the economic profit of a business or investment, taking into account both explicit costs and opportunity costs. Economic profit goes beyond accounting profit by considering the opportunity cost of using resources in a particular venture compared to the next best alternative.

The formula for calculating economic profit is:

Economic Profit = Total Revenue – Total Explicit Costs – Total Implicit Costs

Where:

• Economic Profit is the measure of profit that accounts for both explicit and implicit costs.
• Total Revenue is the total amount of money generated from sales or operations.
• Total Explicit Costs are the actual expenses incurred in the business, such as wages, rent, materials, and other direct costs.
• Total Implicit Costs represent the opportunity cost of resources used in the business, including the foregone income from the next best alternative.

To use the Economic Profit Calculator formula, follow these steps:

1. Determine the total revenue generated by the business or investment.
2. Calculate the total explicit costs, including all direct expenses associated with the venture.
3. Determine the total implicit costs, which are the opportunity costs of using resources in this venture rather than in the next best alternative.
4. Plug the values of total revenue, total explicit costs, and total implicit costs into the formula: Economic Profit = Total Revenue – Total Explicit Costs – Total Implicit Costs.
5. Calculate the economic profit, which provides a more comprehensive measure of profitability that considers both explicit and implicit costs.

Economic profit reflects the true economic value generated by a business by considering not only the explicit expenses but also the opportunity cost of using resources. If economic profit is positive, it indicates that the business is generating more value than the next best alternative. If it’s negative, it suggests that the resources could have been better utilized elsewhere.