An accounting profit is how we normally think of profits. You buy a can of Pepsi for $1.00 and sell it for $2.00. That’s your accounting profit.
But what if you could have sold the can of Pepsi for $3.00 instead? Well, then you’ve actually lost a dollar of economic profit. Economic profit is what could have been. It’s profit after taking into account the opportunity costs.
Written in 2015