ECONOMICS
PROFIT
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Yes, I understand this from the notes
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No, I don’t understand this from the notes
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No, I don’t understand this, as I have not read the notes
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None of the above
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Detailed explanation-1: -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.” Normal profit (return) in turn is defined as opportunity cost of the owner’s resources.
Detailed explanation-2: -If a firm makes more than normal profit it is called super-normal profit. Supernormal profit is also called economic profit, and abnormal profit, and is earned when total revenue is greater than the total costs. If a firm makes less than normal profit it is called sub-normal profit.
Detailed explanation-3: -Supernormal profit is all the excess profit a firm makes above the minimum return necessary to keep a firm in business. Supernormal profit is calculated by Total Revenue – Total Costs (where total cost includes all fixed and variable costs, plus minimum income necessary for the owner to be happy in that business.)
Detailed explanation-4: -Supernormal profit occurs when the organisation’s total revenue exceeds its total cost. The total cost includes all variable and fixed costs and the minimum income acceptable for the business.
Detailed explanation-5: -Calculating abnormal profit For example, to use a production machine, the company has two best options: buy it or rent it. If the company chooses to rent a machine, the opportunity cost is the same as the machine purchase cost. Conversely, if you buy a machine, the rental costs represent implicit costs.