AP Microeconomics Flashcards: Types of Profit
Written by AP Content Team, Verified for 2026 AP Exams, Last updated: May 2026
Review key ideas with interactive flashcards. This set includes 10 cards to help you master important concepts.
What does an economic loss indicate to a firm?
An economic loss indicates that a firm is not covering all of its costs, including its implicit costs, signaling that its resources could be better used elsewhere.
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What does an economic loss indicate to a firm?
An economic loss indicates that a firm is not covering all of its costs, including its implicit costs, signaling that its resources could be better used elsewhere.
What is economic profit?
Economic profit is the profit remaining after all costs, both explicit and implicit (like an entrepreneur's time or compensation for risk), have been subtracted from total revenue.
An entrepreneur uses their own savings for startup capital. Why is the potential interest from those savings considered when calculating economic profit?
The forgone interest represents an implicit cost (the cost of financial capital) that must be accounted for when calculating a firm's economic profit.
Which type of profit do firms primarily respond to when making decisions about entering or exiting a market?
Firms respond to economic profit or economic loss, rather than accounting profit, when making strategic decisions.
If a firm is earning a positive accounting profit but a zero economic profit, what does this signal about its costs?
This signals that the firm's accounting profit is exactly equal to its implicit costs, meaning it is earning a normal profit.
What are implicit costs?
Implicit costs are the opportunity costs of using a firm's own resources, such as the cost of financial capital, compensation for risk, or an entrepreneur's time.
How do firms typically respond to the existence of economic profit in an industry?
The presence of economic profit signals an opportunity, which encourages firms to enter the industry or expand their operations.
Why is accounting profit considered an incomplete measure of a firm's performance?
Accounting profit is an incomplete measure because it fails to account for the opportunity costs of production, known as implicit costs.
Define normal profit.
Normal profit is the level of profit that results when a firm has fully compensated for all its costs, including implicit costs.
What is the key difference between accounting profit and economic profit?
Accounting profit fails to account for implicit costs, whereas economic profit considers both explicit and implicit costs.