Jim James left his job as an accountant at a large firm where he earned $70,000 per year because he thought he could earn more in his own business. In the first year of self-employment, he had revenues of $100,000 but business expenses of $40,000. Based only on this information, what was his profit in his new business if we define profit as economists define it.
How does the economist's definition of
profit differ from an accountant's definition of
They differ in terminology, but the
concepts are the same.
Accountants usually only considers
cash outlays as costs while economists consider
opportunity costs as the proper cost concept.
The concept of profit that economists
use can be accurately measured while the concept used
by accountants cannot be.
Economists are concerned with the incentive issues in
the concept of profit while accountants are