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Therefore, economic profit is smaller than accounting profit. [3] Normal profit is often viewed in conjunction with economic profit. Normal profits in business refer to a situation where a company generates revenue that is equal to the total costs incurred in its operation, thus allowing it to remain operational in a competitive industry.
In economics and finance, the profit rate is the relative profitability of an investment project, a capitalist enterprise or a whole capitalist economy. It is similar to the concept of rate of return on investment .
[1] [3] Normally, when economic profit exists within an industry, economic agents form new firms in the industry to obtain at least a portion of the existing economic profit. [ 1 ] [ 4 ] As new firms enter the industry, they increase the supply of the product available in the market, and they are forced to charge a lower price to entice ...
In a single-goods case, a positive economic profit happens when the firm's average cost is less than the price of the product or service at the profit-maximizing output. The economic profit is equal to the quantity of output multiplied by the difference between the average cost and the price.
This problem concerned the question of explaining how an average or "normal" return on production capital invested (e.g. 8%, 10% or 16%) could become established, so that capitals of equal size reaped equal profits, even although the enterprises differed in capital compositions and amounts of labour performed (see labor theory of value) and ...
In economics, abnormal profit, also called excess profit, supernormal profit or pure profit, is "profit of a firm over and above what provides its owners with a normal (market equilibrium) return to capital." [1] Normal profit (return) in turn is defined as opportunity cost of the owner's resources.
In simple terms, although profit is related to total cost, =, the enterprise can maximize profit by producing to the maximum profit (the maximum value of ) to maximize profit. But when the total cost increases, it does not mean maximizing profit Will change, because the increase in total cost does not necessarily change the marginal cost.
In Cost-Volume-Profit Analysis, where it simplifies calculation of net income and, especially, break-even analysis.. Given the contribution margin, a manager can easily compute breakeven and target income sales, and make better decisions about whether to add or subtract a product line, about how to price a product or service, and about how to structure sales commissions or bonuses.