Final answer:
When subtracting expenses from effective gross income, the resulting number represents the economic profit. Economic profit is calculated by subtracting both explicit costs (i.e., expenses that are directly incurred) and implicit costs (i.e., opportunity costs) from total revenues.
Step-by-step explanation:
When subtracting expenses from effective gross income, the resulting number represents the economic profit. Economic profit is calculated by subtracting both explicit costs (i.e., expenses that are directly incurred) and implicit costs (i.e., opportunity costs) from total revenues. For example, if the total revenues are $200,000, explicit costs are $85,000, and implicit costs are $125,000, the economic profit would be -$10,000 per year.