What is the formula used to express profit in economic terms?

The formula that accurately expresses profit in economic terms is derived from the accounting definition, which can indeed be expanded to encapsulate various elements of economic profit. The correct formula, "Profit = PY - (WL) - RK," represents profit as the difference between total revenues and total costs, considering both explicit and implicit costs.

In this formula:

• PY represents total revenue, where P is the price of a good or service and Y is the quantity sold.
• WL signifies the total cost of labor, where W is the wage rate and L is the number of labor hours or the quantity of labor.
• RK reflects the total cost of capital, where R is the rental rate of capital employed and K signifies the amount of capital used.

This expression accounts for both the direct costs associated with production as well as opportunity costs, enabling a comprehensive evaluation of profit in economic analysis. As a result, it defines economic profit more appropriately than a simpler accounting measure by incorporating the costs of factors of production involved in generating revenue.

The other options do not capture the full nature of profit in economic terms. Total Revenue divided by Total Costs does not logically represent profit, and neither does adding total costs to total revenue. The formula that simply states profit as price times quantity