Economic profit is the total revenue generated by a business minus total opportunity costs. It is a more theoretical way of looking at a company's profitability that differs from the standard accounting profit reflected on the company's income statement, which simply subtracts the cost of producing goods and services from total revenue.
Accounting for profit ordinarily involves evaluating actual revenue that came into the business against actual expenses that were paid. Another way of looking at overall profitability is to assign a cost to the opportunities that the business couldn't capitalize on, known as the total opportunity cost. Lost opportunities include such things as the difference in a discount the company could have received on raw materials if it had the cash flow to buy in bulk and other business opportunities or adjustments that would have increased profitability under ideal circumstances.
Economic profit, also known as economic value added, is almost always lower than actual profit because it factors in scenarios that resulted in the business making less profit than it could have optimally made. Considering economic profit along with actual profit allows a company's stakeholders to evaluate the performance of the people running the business, since opportunity cost often reflects management decisions made to direct operations.Learn More
According to the World Bank, GDP per capita is equal to the GDP, or gross domestic product, of a country divided by the midyear population of the country. The gross domestic product of a country is the total value added by all the residents in the country in the last period plus any product taxes and minus any subsidies that are not included in the total value of the products.Full Answer >
The limitation of cardinal utility analysis is the difficulty in assigning numerical value to a concept of utility. Utility is comparable on a scale, but not easily quantifiable. In other words, the utility of a good or service cannot simply be measured in numbers in order to determine its economic value.Full Answer >
A logical assumption is an assumption that follows sound logic and supporting evidence. It also acknowledges that variables which may make the assumption false do not exist.Full Answer >
The Securities and Exchange Board of India regulates the securities and investment markets in India. The primary objective of the board is to maintain efficient and stable markets by establishing and enforcing rules and regulations in the marketplace.Full Answer >