Total profit is equal to total revenue minus total cost. Since accountants and economists calculate costs differently, their profit estimates will also differ.
Accounting profit is total revenue minus explicit costs, while economic profit is total revenue minus explicit and implicit costs.
Based on the example of Thabo, this is how an accountant and an economist would calculate total cost:
| An accountant uses only explicit cost
Salary for law clerk: R120 000
Administration costs: R 80 000
Total explicit cost: R200 000
|
An economist uses both explicit
and implicit costs
Salary for law clerk: R120 000
Administration costs: R 80 000
Total explicit cost: R200 000
Rent: R 60 000
Own salary: R450 000
Total implicit cost R510 000
Total cost R710 000
|