00:01
So here we need to demonstrate our understanding of the idea of economic profit.
00:05
And economic profit is different than the accounting profit that we may be familiar with, right? accounting profit is just sort of money that comes into the business minus money that comes out of the business, revenues minus costs.
00:18
But the difference between economic profit and accounting profit is that you have to subtract off the opportunity cost of the resources used, right? so, for example, in this situation, we have this phrase, the accounting profit is equal to 25 ,000, right? that's great.
00:41
But we have these opportunity costs, right? we have the opportunity cost of the implicit cost of your capital.
00:48
The opportunity cost of your capital is 2 ,000.
00:52
And the opportunity cost of your time is 2300 ,000, sorry, right? so the economic profit here is zero, right? it is zero because if you used your time and your capital in another endeavor, right, besides this business, if you say if you rented out your capital and sold your time in the labor market to someone else, you would be earning just as much money, right? that's what the economic profit is telling you...