accounting profit total revenue explicit costs explicit costs are payments firms make to purchase resources and products Economic profit the difference between total revenue and the sum of its explicit and implicit cost EX 1 Should Pudge continue farming or quit if he quits earns 11 000 year working in retail explicit costs are 10 000 total revenue is 22 000 Accounting profit total revenue explicit cost 22 000 10 000 12 000 Economic profit total revenue explicit cost implicit cost 22 000 10 000 11 000 1 000 therefore he should continue farming because his economic profit is positive normal profit accounting profit economic profit 12 000 1 000 11 000 EX 2 Should Pudge continue farming or quit if he quits he earns 11 000 per year working retail explicit costs 10 000 total revenue 20 000 Accounting profit total revenue explicit costs 20 000 10 000 10 000 economic profit total revenue explicit implicit 3 9 review Accounting Profit Economic Profit Normal Profit Economic profit in the long run is always zero P MC ATC 20 000 10 000 11 000 1 000 therefore pudge should quit because he isn t making any money Cost benefit continue something only if marginal benefit is as great as marginal cost
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