"Income" usually refers to "net income," which is revenue minus expenses. So subtracting the sum of total fixed and variable costs from income would mean deducting expenses twice. Furthermore, for a manufacturer, not all fixed and variable costs are expensed in the period they are incurred. Any manufacturing fixed and variable costs for unsold units remain in inventory on the balance sheet until the units they are attached to are sold. Economic profit is not even equal to revenue minus fixed and variable costs for sold units and other selling, general and administrative expenses. That is the definition of accounting profit. Economic profit is lower than accounting profit because it includes more costs than accounting profit includes.
Revenue minus all accounting costs is accounting profit. Economic profit is lower than accounting profit because it includes more costs than accounting profit includes.
For a manufacturer, not all fixed and variable costs are expensed in the period they are incurred. Any manufacturing fixed and variable costs for unsold units remain in inventory on the balance sheet until the units they are attached to are sold. Economic profit is not even equal to revenue minus fixed and variable costs for sold units and other selling, general and administrative expenses. That is the definition of accounting profit. Economic profit is lower than accounting profit because it includes more costs than accounting profit includes.
Economic profit is calculated as follows: Revenue ? Explicit Costs ? Implicit Costs = Economic Profit Revenue ? Explicit Costs (only) = Accounting Profit. Accounting profit must be reduced by implicit costs, such as opportunity costs, to arrive at economic profit. So economic profit will always be lower than accounting profit.
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