How can you be sure that you make the best financial decision when evaluating whether to take a job or invest in a new business opportunity? Your friends might tell you to calculate the Profit you think you can make in both opportunities and compare them to see which is better.
What they are most likely referring to is accounting profit. But unfortunately, they don’t realize there is another way to analyze your situation that considers the alternatives you may be giving up. The other way is to calculate the economic Profit of the two scenarios.
Economic Profit is the difference between the total revenue received by a business and the total implicit and explicit costs of a firm. It’s often the extra Profit left over after considering the next best alternative investment and can be either positive or negative in value.
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