Economic profit

Economic profit is the difference between the revenue generated by a business and the opportunity costs of the assets used. The result can be substantially different from the accounting profit of an organization. For example, an investment banker gives up her $400,000 annual salary in order to open her own wine bar. In the first year of operation, the wine bar generates revenues of $600,000, against which there are $450,000 of expenses, for an accounting profit of $150,000. However, she could have earned $400,000 if she had kept her old job, so there was actually an economic loss of $250,000.