Discussion: "Economic Profit vs. Accounting Profit"
In the youtube video below, Sal from Khan Academy explains how the economic concept of cost is different from accounting cost and why the difference is important to understanding what we mean by profit. In economics, we build opportunity cost - including 'implicit costs' - right into the supply curve.
https://www.youtube.com/watch?time_continue=5&v=06j_zPdPWOY
After viewing this video, respond to one of the following:
• You are the owner of a fast-food restaurant and are adding a new item to your menu. Identify the fixed and variable costs associated with your new menu item.
• Consider the table below. What is the accounting cost of operating this business? What is the economic cost? Why do the two cost estimates differ?