Difference Wiki

Economic vs. Normal Profit

With many objectives of the business, the main goal the business is to earn profits, so the company remains operational and brings economic stability to the people affiliated with it. The profit is the reward for the entrepreneur or the businessman who bears the risk and offers the services to the people. In the common mindset, profit is the difference between the costs and revenue of the company, the three terms economic profit, and normal profit are similar in many regards but yet they differ from each other in many ways. On the other hand, economic profit is the supernormal profit as it is the difference between the revenue generated and the total cost (including explicit cost well as implicit cost). Conversely, the normal profit is the situation of the firm when its accounting profit is equal to zero as in this the profit there is not any difference between the revenue collected and the cost spent by the firm.

Key Differences

Economic Profit = Total Revenue – (Total Explicit + Total Implicit Cost), Total Revenue = Total Cost (i.e. explicit and implicit).
The economic profit is not calculated using GAAP it revolves around the concept of implicit costs and the opportunity foregone. At the same time, normal profit is evaluated by assessing the difference between the total revenue and the cost.
The economic profit, tells about that how well the company is allocating its available resources. The normal profit tells whether the firm is collecting the revenue equal to the cost.
The economic profit is the supernormal profit. On the other hand, the normal profit is the revenues generated and the total cost (including explicit cost well as implicit cost).

Comparison Chart

Definition

The economic profit is the supernormal profit as it is the difference between the revenues generated and the total cost (including explicit cost well as implicit cost).
The normal profit is the situation of the firm when its accounting profit is equal to zero.

Calculation

The economic profit is not calculated using GAAP it revolves around the concept of implicit costs and the opportunity foregone.
The normal profit is evaluated by assessing the difference between the total revenue and the cost.
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Tells

The economic profit, tells about that how well the company is allocating its available resources.
The normal profit tells whether the firm is collecting the revenue equal to the cost.

Formula

Economic Profit = Total Revenue – (Total Explicit + Total Implicit Cost)
Total Revenue = Total Cost (i.e. explicit and implicit)
Janet White
Sep 20, 2022

Economic and Normal Profit Definitions

Economic

Of or relating to the production, development, and management of material wealth, as of a country, household, or business enterprise.

Economic

Of or relating to an economy
A period of sustained economic growth.

Economic

Of or relating to the science of economics
New economic theories regarding the effects of deficit spending.

Economic

Of or relating to the practical necessities of life; material
Wrote the book primarily for economic reasons.
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Economic

Financially rewarding; economical
It was no longer economic to keep the manufacturing facilities open.

Economic

Efficient; economical
An economic use of home heating oil.

Economic

Pertaining to an economy.

Economic

Frugal; cheap (in the sense of representing good value); economical.

Economic

Pertaining to the study of money and its movement.

Economic

(obsolete) Pertaining to the management of a household
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Economic

Pertaining to the household; domestic.

Economic

Relating to domestic economy, or to the management of household affairs.
And doth employ her economic artAnd busy care, her household to preserve.

Economic

Managing with frugality; guarding against waste or unnecessary expense; careful and frugal in management and in expenditure; - said of character or habits.
Just rich enough, with economic care,To save a pittance.

Economic

Managed with frugality; not marked with waste or extravagance; using the minimum of time or effort or resources required for effectiveness; frugal; - said of acts; saving; as, an economical use of money or of time; an economic use of home heating oil.

Economic

Of or pertaining to the national or regional economy; relating to political economy; relating to the means of living, or the resources and wealth of a country; relating to the production or consumption of goods and services of a nation or region; as, economic growth; economic purposes; economical truths; an economic downturn.
These matters economical and political.
There was no economical distress in England to prompt the enterprises of colonization.
Economic questions, such as money, usury, taxes, lands, and the employment of the people.

Economic

Regulative; relating to the adaptation of means to an end.

Economic

Of or pertaining to economics.

Economic

Profitable. Opposite of uneconomic.

Economic

Avoiding waste; as, an economical meal. Opposite of wasteful.

Economic

Of or relating to an economy, the system of production and management of material wealth;
Economic growth
Aspects of social, political, and economical life

Economic

Of or relating to the science of economics;
Economic theory

Economic

Concerned with worldly necessities of life (especially money);
He wrote the book primarily for economic reasons
Gave up the large house for economic reasons
In economic terms they are very privileged

Economic

Financially rewarding;
It was no longer economic to keep the factory open
Have to keep prices high enough to make it economic to continue the service

Economic

Using the minimum of time or resources necessary for effectiveness;
An economic use of home heating oil
A modern economical heating system
An economical use of her time

What is Economic Profit?

The economic profit is the supernormal profit as it is the difference between the revenues generated and the total cost (including explicit cost well as implicit cost). It is quite similar to that of the accounting profit, the main point which distinguishes it from all other profits is the implicit cost, which mainly revolves around the concept of the opportunity foregone.

To know comprehensively about the concept of economic profit, one should have a basic how-to know of the implicit cost. Implicit cost is the cost that is not directly incurred by the firm or the company.

In this type of cost, an outlay of cash doesn’t take place, so that is why it isn’t noted, and subsequently, it can’t be traced. It mainly revolves around the concept of opportunity cost, which tells about the (indirect) cash or profit foregone due to opting for the alternative. The loss or the profit in the implicit cost doesn’t directly have any impact on the profitability of the company.

What is Normal Profit?

The normal profit is the type of profit earned by the company or the firm when the difference between the total revenue collected and the total cost becomes zero. In other words, we can say that it is the breakpoint for the company to remain in the market competition.

Anything less than this profit will be a loss to the enterprise. For instance, when we establish a firm, very immediately we are not up with the profits. The company requires time to stabilize its operations and then earn profits.

And when the company reaches the breakpoint or collects the revenue as much as the cost of production then this type of profit is known as the normal profit. It should be kept mentioned that when the economic profit of the company is equal to zero, then the company is said to be in a state of normal profit. Therefore, the economic profit is also called the ‘zero economic profit.’

 

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