Accountants include only explicit costs in their computation of total cost Explicit costs include charges that must be paid for factors of production such as labor and capital, together with an estimate of depreciation Profit computed using only explicit costs is called accounting profit It is the measure of profit firms typically report; firms pay taxes on their accounting profits, and a corporation reporting its profit for a particular period reports its accounting profits To compute his accounting profits, Mr Gortari, the radish farmer, would subtract explicit costs, such as charges for labor, equipment, and other supplies, from the revenue he receives Economists recognize costs in addition to the explicit costs listed by accountants If Mr Gortari were not growing radishes, he could be doing something else with the land and with his own efforts Suppose the most valuable alternative use of his land would be to produce carrots, from which Mr Gortari could earn $250 per month in accounting profits The income he forgoes by not producing carrots is an opportunity cost of producing radishes This cost is not explicit; the return Mr Gortari could get from producing carrots will not appear on a conventional accounting statement of his accounting profit A cost that is included in the economic concept of opportunity cost, but that is not an explicit cost, is called an implicit cost The Long Run and Zero Economic Profits Given our definition of economic profits, we can easily see why, in perfect competition, they must always equal zero in the long run Suppose there are two industries in the economy, and that firms in Industry A are earning economic profits By definition, firms in Industry A are earning a return Attributed to Libby Rittenberg and Timothy Tregarthen Saylor URL: http://www.saylor.org/books/ Saylor.org 498