Differentiate between Accounting profit and economic profit.

Differentiate between Accounting profit and economic profit.
Illustrate with the help of examples.

Profit is defined as the residual value gained from business operations.
However, the exact method of calculation differs between accountants and economists.
Political economists may define profit in still other ways. Sidney Hook defined it as the
cash value of unpaid labor, i.e. the value of all production after the breakeven point.
This avoids deeply vague terms like "residual" and "gained." Economists and
accountants measure profit in slightly different ways, profit will only be the same when
all the factors of production have been credited their full opportunity cost.
Economic profit
Economists usually define profits as revenues less the opportunity costs of labor,
capital, and materials. Furthermore, profits are divided into two types:
Normal profits are the salaries paid to executives in exchange for their
entrepreneurial skills.
Economic profits are what remain after normal profits are subtracted. It is the
economic profit that economists see as the incentive for firms to enter or leave a
market.
Some economists define further types of profit:
Abnormal (or supernormal profit)
Subnormal
monopoly profit
Economic profit is calculated as:
where:
p = profit
P = price per unit
Q = quantity of units sold
AVC = average variable cost
F = total fixed costs
Economic profit can also be calculated by
where C(q) is the cost function with respect to quantity.
The derivative of the cost function is the marginal cost, and the value of the cost
function with quantity 0 are the total fixed costs.
Accounting profit
In the accounting sense of the term, net profit (before tax) is the residual after
deduction of all money costs such as; wages, rent, fuel, raw materials, interest on loans
and depreciation. Gross profit is profit before depreciation and interest, Net profit after
tax is after the deduction of either corporate tax (for a company) or income tax (for an
individual). Operating profit is a measure of a company's earning power from ongoing
operations, equal to earnings before the deduction of interest payments and income
taxes.
Another definition of accounting profit is the total revenue minus costs properly
chargeable against the goods sold.
TR = Total Revenue
TC = Total Cost
AR = Average Revenue
AC = Average Cost
Q = Quantity demanded/sold
Profit = TR - TC
Profit = (AR * Q) - (AC * Q)
Profit = Q * (AR - AC)
TR = TC results in normal profit.
TR > TC results in supernormal profit.
Economic profit versus Accounting profit
In calculating economic profit, opportunity costs are deducted from revenues earned.
Opportunity costs are the alternative returns foregone by using the chosen inputs. As a
result, you can have a significant accounting profit with little to no economic profit.
For example, say you invest $100,000 to start a business, and in that year you earn
$120,000 in profits. Your accounting profit would be $20,000. However, say that same
year you could have earned an income of $45,000 had you been employed. Therefore,
you have an economic loss of $25,000 (120,000 - 100,000 - 45,000).