Economic Profit
Revenue minus all explicit costs and implicit opportunity costs, measuring the true gain above the next best alternative use of resources.
What is Economic Profit?
Economic profit equals total revenue minus both explicit costs (wages, rent, materials) and implicit costs (the opportunity cost of resources the owner supplies, such as their own time and capital). It differs from accounting profit, which deducts only explicit costs. A firm earning zero economic profit is still covering all its costs including opportunity costs — a situation called normal profit — meaning resources are employed in their best alternative use. Persistent positive economic profit signals that a market is generating returns above the competitive norm and typically attracts new entrants who erode that profit over time.
Example
A small business owner earns $200,000 in annual revenue and pays $120,000 in explicit costs such as rent, wages, and supplies, producing an accounting profit of $80,000. However, the owner could alternatively earn $90,000 working as a salaried manager. Economic profit = $80,000 − $90,000 = −$10,000, meaning the business is not covering its opportunity cost even though it shows a positive accounting profit.
Source: Investopedia — Economic Profit