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Economic profits are an important concept in economics. They are a measure of the difference between total revenue and total costs, not counting any taxes or other money that is paid to governments.

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Economic profits can be calculated using the following formula:


Where EPI is economic profit,

TR stands for total revenue,

TC stands for total cost.

In order for a firm to earn economic profits, there are two necessary conditions:

Total revenue must be greater than total cost and total cost cannot include any money paid to governments. If a business is earning more money from the sale of goods or services than it spends in production, they will make an economic profit. Economic profits can also refer to fees charged by banks when consumers use their credit cards. This portion of the transaction fee goes directly into the bank’s coffers as earnings rather than being used for costs such as paying employees’ salaries and maintaining buildings that house operations. Numbering does not work well with long-form content because it complicates what should be written concisely without interruption between ideas. The last sentence may need some revision.


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