Profit

Profit - the difference between the purchase price and the costs of bringing to market.

- Is any amount of money that is left over from a company after all financial expenses have been paid. It is the money they are able to save once the business purchases have been made.

- Is the money a business makes after accounting for all the expenses.

- The positive gain from an investment or business operation after subtracting for all expenses. Opposite of loss.

Different profit concepts

1. Normal profit is the minimum level of profit needed for a company to remain competitive in the market.

- Occurs at the point at which the resources available to the firm are being efficiently used and could not be put to better use elsewhere. It is important to note that zero economic profit does not mean that the company is not earning any money (accounting profit). It is simply a measure of how well resources are being used relative to all possible options.

2. Sub-normal profit – is any profit less than normal profit (where price is less than average total cost).

3. Abnormal Profit – is any profit achieved in excess of normal profit – also known as supernormal profit. When firms are making abnormal profits, there is an incentive for other producers to enter the market to try to acquire some of this profit. Abnormal profit persists in the long run in imperfectly competitive markets such as oligopoly and monopoly where firms can successfully block the entry of new firms. We will come to this later when we consider barriers to entry in monopoly.

4. Economic profit – is the profit above what the market would allow in perfect competition.

- arises when revenue exceeds the opportunity cost of inputs, noting that these costs include the cost of equity capital that is met by normal