Accounting Profit vs. Economic Profit
A rational agent considers both accounting profit and economic profit.
Accounting profit is the net profit of a firm. These are the explicit factors. - E.g. the “accounting profit” of moving to a new house/place is the amount of money you save vs staying were you are.
To calculate whether it is rational to continue running the business (or running the business in this way) you need to calculate the implicit factors as well. E.g., the opportunity cost.
Economic Profit will never be higher than accounting profit assuming there are some implicit costs to factor in.
Source:
- https://www.khanacademy.org/economics-finance-domain/ap-microeconomics/basic-economic-concepts/cost-benefit-analysis/v/accounting-profit-vs-economic-profit
Graph:
- 126.004 Decision Making - Accounting Profit vs Economic Profit to 126.003 Decision Making - Rational Decisions
- 126 Decision Making to 126.004 Decision Making - Accounting Profit vs Economic Profit
- 126.003 Decision Making - Rational Decisions to 126.004 Decision Making - Accounting Profit vs Economic Profit
- 128.009 Management - My performance is measured by the output of my team to 126.004 Decision Making - Accounting Profit vs Economic Profit