Why do economists measure profit differently from accountants?

1 answer:

8 0

Accountants only concern themselves with direct costs which involve things like the cost of materials, rent, and labor for instance. This profit is aptly named "accounting profit".

Economists consider those costs as well, but they also include indirect costs such as opportunity costs of other investments. Recall that opportunity cost is the cost of what you give up if you make a certain decision.

For instance, if a car factory makes 4 door sedans, but it could be making more money with SUVs, then the opportunity cost is high and the economic profit is lower compared to the accounting profit.

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