Assume that a firm’s total revenue is $200,000 per year. It pays its workers wages of $105,000 per year and buys raw materials of $80,000 per year. If the owner has $200,000 invested in this business and could earn 9% by placing this $200,000 in another business, then A) economic profits and accounting profits are both positive.

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Accounting and Economic Profit analysis

One comes across the concept of Profits in the context of business and in analyzing the results of business activity. Profits of a business can be accounting profits, and they can also be economic profits. So how does one understand the concept of accounting versus economic profits?