Accounting Profit (AP) = TR – Explicit Costs

Economic Profit (EP) = TR – (Explicit + Implicit Costs)

Normal Profit is usually equal to zero but includes implicit cost of owner supplied resources.

Abnormal profit occurs when total explicit and implicit costs are less than total revenue.

Economic loss occurs when total explicit and implicit costs are more than total revenue.

20 minutes

Suppose a contract is offered at KES 10 per egg to supply 10,000 eggs to a restaurant, the employee you hire will cost you 20,000 per year and chicken feed costs 50,000 per year. Suppose also that your son, who can work equally as well as your employee is also helping with the chicken work for half of his working time. Also, you have informed your employer to cut your salary from 40,000 to 20,000 so you can work half time and spend the other half on your chicken business, would you take the contract?