How to Calculate Economic Profit

This video tutorial explains how to calculate economic profit, distinguishing it from accounting profit by including opportunity costs. It provides two examples: Clara's Cakes and Jeremy's Furniture Business, demonstrating the step-by-step process of calculating economic profit by determining total revenue and total costs, which include both fixed and variable costs. The tutorial emphasizes the importance of understanding opportunity costs in economic profit calculations.

What is the main difference between accounting profit and economic profit?

• Economic profit excludes opportunity costs.

• Economic profit includes opportunity costs.

• Accounting profit includes opportunity costs.

• Accounting profit is always higher than economic profit.

In the example of Clara's Cakes, what is the total revenue if 12,500 cakes are sold at £2.50 each?

• £31,250

• £12,500

• £15,000

• £30,000

How are total costs calculated in the example of Clara's Cakes?

• Total costs are only the variable costs.

• Total costs are the difference between revenue and profit.

• Total costs are only the fixed costs.

• Total costs are the sum of fixed costs and variable costs.

In Jeremy's furniture business, what is considered an opportunity cost?

• The price at which chairs are sold.

• The salary Jeremy could earn in another job.

• The rent for the workshop.

• The cost of materials for each chair.

What is the total fixed cost in Jeremy's furniture business example?

• £90,000

• £40,000

• £60,000

• £50,000

How is economic profit calculated?

• Total revenue minus total fixed costs.

• Total costs minus total revenue.

• Total revenue minus total variable costs.

• Total revenue minus total costs.

What is emphasized as crucial for calculating economic profit correctly?

• Following the steps systematically.

• Ignoring opportunity costs.

• Using a complex formula.

• Calculating only total revenue.