Economic profit vs accounting profit | Microeconomics | Khan Academy

Difference between a firm's accounting and economic profit
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Microeconomics on Khan Academy: Topics covered in a traditional college level introductory microeconomics course
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Your 8 minute video made more sense than an hour in my text book did! Thank you

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yes that's true

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now everything makes sense. I'm having exam tomorrow, pray for me n tqvm for this!

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Thank you! I got an A- and that's good enough for me :)

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Not All heroes wear capes

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I'm a Managerial Economics student and my Professor is Dr. Gotwalt @ Purdue University...This is an awesome video and user friendly. When I started this class, I was so nervous but Dr. Gotwalt has provided us with tools such as this video link and I feel a bit at ease and comfortable with the class...Thank you for sharing...Sir....#Nice

[@nakz_]

Another thing that has to be considered is the long affects of both of these .. in year 4 of 5 of the restaurant, the accounting profit ur making could be something like 400000, which will most likely be greater than the salary a doctor would get, so it all depends :) .. good video though

[@Angielynda11]

Great video! Simple terms used which helped me understand the subject. Thank you!

[@appletater8146]

Oh my god i can't believe this guy just explained the whole topic for 8 minutes and I completely understand it. Thank you very much

[@LaremDuh]

Wow this is so clear! Thank you so much!

[@Daniel-mw7pu]

Amazingly clear analysis. A great example of this was when Steve Jobs returned to Apple. It’s commonly thought the company was going under, but that’s not true. Every division was profitable. Their Mac sales were solid. But he saw the fatal flaw they didn’t see: all of their resources were grossly misallocated! After casting a brand new vision, Jobs cornered the market on portable digital music players and again with the iPhone.

[@tracygeorge63]

I was confused about the economic profits of a firm. Now I get it. Thanks again. I love education videos....love them.

[@fleshcookie]

I just watched some of his videos on Organic Chemistry, i don't understand how this guy knows so much stuff.

[@IllegallySniped]

Why didn't I have this guy for my Economy Class in High School... I might have actually paid attention...

[@ariannetimkang2364]

So basically, the formula for economic profit is, Revenue - explicit cost - implicit cost? Correct me if I'm wrong 🙁 I need to report this topic and I am still confused with their formulas, thank you in advance ☺️

[@heirina]

This video was way better than today’s 1 hour lecture🖤

[@grownomad]

ya exactly

[@r.s.j.studios]

me watching at double speed because it's still easy to understand and takes half the time lol Edit: just realized he made this vid 11 years ago, when I was 5 🤣

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Sir you are an outstanding personality

[@sonikakalra9501]

Really it helps me a lot .thanku so much sir

[@milfordjohnson2289]

hehe the good old days! where have you been professor why arent you running things! ive calculated that other people have calculated my opportunity cost to be about $1, judging by how things are going 😆 mannn it is good to watch your vids again.

[@sunset7424]

thanks for the help man I've been struggling with economic in university because it's really new to me and my current professor is a very confusing lecturer I got a midterm coming up and this clears up a lot things for me

[@vanshdharod5371]

watching in 2024 ..... it helped me alot

[@gir240]

my god wow ive been trying to look in to sopa and came out with nothing and u helped so much NO MORE SOPA

[@FarhanC99]

im sorry but he didnt half 5 hours to go through everything that is related to either accounting profit or economic profit

[@bokirnik]

Thanks so much for these video. I'm not an economist and that why this Is veeeery useful for me. thanks again.

[@joshy18100]

Thanks for the help! Economics is very theoretical and your examples help a lot with putting them in to a reality setting.

[@leahstewart6868]

I agree, he really showed how Microeconomics related to financial accounting.

[@jsan6078]

You explained it well than my teacher did

[@AliouDia]

just what i was looking for. Short and precise

[@blackorisha]

It is a great video. I have a question : for the implicit opportunity costs why do you use the full amount of wages foregone instead of the difference between the wages foregone and the accounting profit of 50000$. my point being that the restaurant owner could not have been a doctor and a business owner at the same time. so what he is really missing on is not 150000$ since he is making 50K with the restaurant. Isn't he missing on 100000$ instead ?

[@davesanbourne8505]

blackorisha Hi blackorisha- good question, the only thing is that you actually answered your own question- several times!- within your own post :) "why do you use the full amount of wages foregone instead of the difference between the wages foregone and the accounting profit of $50,000?" - This is exactly the correct thing to do, so you're right about that. But in the video, he actually does do this- if you notice, he subtracts out $150k in wages foregone, yes, but that's not the final calculation- he actually takes the _difference between this and the $50k he made running the restaurant_ and winds up with -$100k as the final answer - emphasis added on the difference part b/c that's actually exactly what you were asking about in your post :) And if that wasn't quite clear (I'm not the best at explaining things), this also illustrates it pretty well: "Isn't he missing on 100000$ instead ?" -- if you look at the bottom number, on the right hand side, you'll see that is indeed exactly what he ended up at: -$100k - hope that helps!

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[@TheIamoutthere]

You are the best hands down.

[@ewokER100]

i have an exam tomorrow and was confuse but after i watched this i understand it now

[@napillnik]

This generally works, but only in simple cases. Imagine you had 5 business opportunities which don't consume your whole time during the day, and can't be extended to a full day. You can't just add and subtract this time. Money is just a measurement of value. Value is productivity*time. Productivity is a relatively constant value, so time is what you've got to measure. Calculating the hourly profit will get you to operational research, which is what you want in complex, real life situations.

[@dasanyum]

The explanation is so simple for me to understand! Thanks so much for this eye-opener.

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Taught the concept deliciously well ;-)

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Thank you for making it so simple ...

[@osamaalhalabe]

Thank you for nice explain

[@ronylambre6406]

I couldn't thank you enough for this information.

[@LK1421]

Thank you so much for your videos! Always very helpful.

[@adongcaguor113]

Super helpful

[@SailorMan1000]

if your implicit costs were more than one option, say for example you could have been earning 150,000 by being a doctor but you could also have been earning 100,000 by being a runway model, would the total implicit costs be the highest valued opportunity cost only? thanks for the great videos!

[@anilbhore8098]

Is the basic difference- Economic profit also calculates ( includes) implicit cost?

[@TheMasterOfWishes]

It also includes opportunity costs

[@kayf_ahmad]

Thank You

[@ihsar3547]

Thank you sir❤

[@ericklaus836]

This makes sense.... keep it up.

[@dantesmith3664]

good video. Thank you Sir

[@paulorosolen8742]

thank you! great class

[@jasmineleake2736]

Thanks so much for the explanation what is the program you are using to explain this to us?

[@dorcastaty144]

I have a question in the case of the economic profit one supposes that one has two work? in the sense of giving up one to prioritize the other and the lost wages are used to calculate our profit?

[@Nischhal]

Very helpful sir :) It made me understand in just one time

[@chaozhang7976]

just want to say thank you!!!!!!!!!!!!!!

[@hasnainkhan6728]

Thank you sir

[@damianlopezauffant8614]

What if you owned the place and it was your first period would you expense the price paid for the place or would it not be calculated into profit

[@Ezinma88]

Really clear, thanks

[@boldcautionproductions9203]

Thanks, cheers...

[@Sarcasmrules4]

@khanacademy can you do video(s) on something like quantum mechanics/ particle physics. Profit for the Win

[@jennron9878]

When calculating economic profits, and there are two different employment alternatives - do you calculate two different economic profits, based on the different wages foregone for each employment alternative?

[@ufikekahlesidelo4866]

Yes

[@waleedsaeed540]

Does zero economic profit equal the industry profit or the interest on government bonds? or other thing ?

[@alauc]

Mr. Khan what Are from your point of view independent variables that explain the profitability variance? For me they Are moral, intelektuall, social, physical, and financial capital and just in sucu order!

[@yoangonzalez8460]

200,000 for Rent? give some real numbers man

[@Laarry1995]

Thank you so much!

[@mnljh711986]

@RJForce I wasn't criticizing I was just making an observation ,I know its supposed to be just an example of sorts and if you'll recall correctly I did state that it was a good one at that so don't be so hypersensitive I wasn't trying to be insulting

[@atkearns]

great job, very clear!

[@ashishgautam1124]

which software do you use to write this and explain?

[@gdogvibes1]

Video views just jumped 8k from the last video...

[@Yagamiiiiiiiiiiiiiii]

Does marginal cost include implicit expenses?

[@GeneralCodyHD]

Got an Econ exam tomorrow. Pray for me.

[@ottobycong]

good work

[@HigherPlanes]

interesting stuff.

[@CipherMind117]

Whoa! Watch out everybody, this guy's from a Commonwealth country and knows what's up! Far be it from us to challenge him with the fact that "labor" is the proper spelling in American English!

[@thenewtheory]

thanks!

[@mnljh711986]

he forgot to add the utilities to the expense list gas bill, electricity water and so on in that case he won't make any profit , however with that pointed out this is a good generalization in basic economics

[@sabinaimanova3581]

Actually I could not understand why wages are implicit cost. They are obviously explicit cost.

[@marissakolb9321]

they are both the same except wages forgone-what is that? how is that different than labor?

[@EraserFS]

+Marissa Johnson The difference is that labor expenditures are paid to employees. This doesnt include the employer or owner of the business. Profit is his income. If this owner is able to run another business, that earns him more income, then not exploiting the other business are his economic costs. In the given example he loses 100k income from running a restaurant relative to being a doctor.

[@MossA-ox7ys]

Accounting profit is net income or net loss

[@ANAS577]

what is wages forgone or forgone interest?

[@mnljh711986]

@RedEagle575 youtube is sometimes confusing on the replies I'm the one that mentioned the utilities not RJForce

[@kittercat]

Economic Profit is just a different way of thinking about it. Accounting profit is what you use to report your payments to the government, for instance. In this case it means the business is surviving! Economic takes into account the sacrifices people made for that business to run and the Accounting focuses on the business alone. Economic is a bit more personal. Maybe the guy hated being a doctor, or his business will make more money every year.

[@napillnik]

So if you have a limited resource - your time, which you have to divide across different sources of income, you need to measure the accounting profit from each hour you can provide, and then go straight to this: en wikipedia org/wiki/Operations_research

[@jillroberts379]

Are you the guy who does the voice for the video Llamas with Hats? Because you sound uncanningly like Carl

[@epikTm]

i love this :D

[@jeeniajaman4127]

suppose, i am unemployed person and i have started a business .so now my implicit cost is 0....right?

[@nowan3308]

Savior

[@theresasmith9545]

whats a cost principle?

[@zachstuder3547]

What I'm not understanding is how his revenue is 500,000 and has those list of expenses while he is working as a doctor and making 150,000/yr instead of running the restaurant. I'll rephrase that, If he is a doctor then how does he even have that list of expenses. It wouldn't even be existent. Wouldn't that be like me saying that I have an economic profit of negative 92.5 billion dollars because I didn't create microsoft?

[@jsoncoding1025]

I think he is looking at the two choices if he opens the restraunt he will make 50000 In profit but if he is a doctor to open tht same restraunt he would give up his pay ... calculating the difference between the restraunt profit nd pay economically speaking he will loose 100000

[@jsoncoding1025]

Nd yes I think u are right about the Microsoft if u had the option and resources to create microsoft... u learned something in the 8 mins of video but could have learned something else with tht time economics is about using scarce resources to make choices

[@Sarcasmrules4]

@vickiormindyb sorry, it's something I have a profound interest in

[@shyamtaneja4046]

Excellent... Thanks alot Sir You made me understood in the first place.. :)

[@RedEagle575]

@mnljh711986 adding to what RJForce said, utilities are an explicit cost, which generate "receipts" and are part of your accounting profit, which only cares about the receipts, no implicit costs.

[@kittenkits]

Thanks a million tonnzzz

[@ImSoOffended]

you've misspelled "labour"

[@jaylovesfitness]

1st is liken

[@alauc]

Mr

[@AngelAsh666]

@89savant haha this made me smile :)

[@ameraahmedelboghdady7374]

Why there isn't an Arabic translation😕😕😕😕😕😕

[@NZSideways8]

@billyzelsnack So you could be better off elsewhere, why is that making you happy?

[@kittercat]

I've done it. :[

[@aarongoh]

@billyzelsnack Same for me, money will not make me happy as much as satisfaction! thumbs up~

[@ANAS577]

am i the only one who didnt understand the difference?

[@jaylovesfitness]

1 dislike ha

[@I0lcatz]

why didn't you just keep your job as a doctor?

[@sixpaq45]

If I need a kindergarten education then I'll ask that teacher ... when I need a real business idea I refer to @experts ... good luck with this video as it isn't #USEFUL at all