Economic Profit Calculator

Formula

The formula to calculate the Economic Profit (EP) is:

\[ EP = (R - C) \times Q \]

Where:

$ EP $ is the Economic Profit ($)
$ R $ is the Average Revenue ($)
$ C $ is the Average Cost ($)
$ Q $ is the Total Quantity Sold (units)

What is Economic Profit?

Economic profit is the difference between the revenue from the sale of a good or service and the associated costs. Those associated costs include things like opportunity costs. It provides a more comprehensive measure of profitability compared to accounting profit, as it considers both explicit and implicit costs.

Example Calculation

Let's assume the following values:

Average Revenue (R) = $50
Average Cost (C) = $30
Total Quantity Sold (Q) = 1000 units

Using the formula to calculate the Economic Profit:

\[ EP = (50 - 30) \times 1000 = 20 \times 1000 = 20000 \text{ dollars} \]

The Economic Profit is $20,000.