that the firm already owns. Often for small businesses, they are resources that the owners contribute. For

example, working in the business while not earning a formal salary, or using the ground floor of a home as a

retail store are both implicit costs. Implicit costs also include the depreciation of goods, materials, and

equipment that are necessary for a company to operate. (See the Work It Out feature for an extended example.)
160 7 • Production, Costs, and Industry Structure

These two definitions of cost are important for distinguishing between two conceptions of profit, accounting

profit, and economic profit. Accounting profit is a cash concept. It means total revenue minus explicit

costs—the difference between dollars brought in and dollars paid out. Economic profit is total revenue minus

total cost, including both explicit and implicit costs. The difference is important because even though a
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