Types of Profit
Definition
Types of profit refer to different ways businesses can earn income beyond their expenses. There are three types - economic profit, accounting profit, and normal profit.
Analogy
Think about playing a video game where you earn points for completing levels. Economic profit is like earning extra bonus points on top of what you need to advance in the game, while accounting profit is just meeting that minimum requirement. Normal profit is like breaking even - neither gaining nor losing any points.
Related terms
Economic Profit: Economic profit measures total revenue minus both explicit and implicit costs.
Accounting Profit: Accounting profit measures total revenue minus only explicit costs.
Normal Profit: Normal profit represents the minimum level of profits needed for a business owner to stay in business and continue operating.
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