Economic vs. Normal Profit
Main DifferenceWith 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.
Difference Between Economic and Normal Profit
Economic vs. Normal Profit
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).
Economic vs. Normal Profit
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.
Economic vs. Normal Profit
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.
Economic vs. Normal Profit
Economic Profit = Total Revenue – (Total Explicit + Total Implicit Cost), Total Revenue = Total Cost (i.e. explicit and implicit).
Economicadjective
Pertaining to an economy.
Economicadjective
Frugal; cheap (in the sense of representing good value); economical.
Economicadjective
Pertaining to the study of money and its movement.
Economicadjective
of or relating to an economy, the system of production and management of material wealth;
economic growthaspects of social, political, and economical lifeEconomicadjective
of or relating to the science of economics;
economic theoryEconomicadjective
concerned with worldly necessities of life (especially money);
he wrote the book primarily for economic reasonsgave up the large house for economic reasonsin economic terms they are very privilegedEconomicadjective
financially rewarding;
it was no longer economic to keep the factory openhave to keep prices high enough to make it economic to continue the serviceEconomicadjective
using the minimum of time or resources necessary for effectiveness;
an economic use of home heating oila modern economical heating systeman economical use of her timeComparison Chart
| Economic Profit | Normal Profit |
| 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. |
| 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) |
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.’
