Deciding on the Most Profitable Output

Abstract

The economist’s view of the costs of production differs from the accountant’s. This is because the economist includes all opportunity costs — the returns forgone by not using a factor in its best alternative. Thus what the owner of a firm could earn from his capital and labour in the best alternative (implicit costs) plus normal profit have to be included in costs. Any profit made additional to normal profit is termed ‘supernormal’ profit.