Economic profit or loss is based on opportunity cost principal
The opportunity cost or alternative costs are the returns from the second best use of the organization's resources or here in this case the individual's capability.
For example a farmer who is producing wheat can also produce rice with the same factors.
In Economics, The opportunity cost of anything is the next best alternatives that could be produced instead by the same factors, costing the same amount of money. The opportunity cost thus are the costs of sacrificed alternatives. A machine can produce either X or Y. The opportunity cost of producing a given quantity of X is the given quantity of Y which it would have produced.
Therefore it should be remembered that
- All decisions involve choice must involve ...
This solution explain some examples that have lead to economic profits or losses