AP Microeconomics AMSCO Guided Notes
3.4: Types of Profit
AP Microeconomics Guided Notes
AMSCO 3.4 - Types of Profit
Essential Questions
- How do firms calculate different types of profit?
I. Accounting Profit vs. Economic Profit
1. What is profit and why do accountants and economists calculate it differently?
A. Accounting Profit
1. What is accounting profit and what types of costs does it include?
B. Economic Profit
1. How does economic profit differ from accounting profit in what it measures?
2. What are implicit costs and how do they differ from explicit costs?
3. What are three examples of implicit costs that firms must consider?
4. What is a normal profit and what does it indicate about a firm's resource use?
II. Responding to Profit
1. What is profit motive and why is it central to business operations?
2. What signals do profits and losses send to firms about resource allocation?
3. How do higher-than-average profits affect market entry decisions by other firms?
4. Why do firms sometimes continue operating despite losses, and what determines when they should exit the market?
Key Terms
profit
accounting profit
explicit costs
economic profit
implicit costs
opportunity costs
normal profit
profit motive