Profit

Profit

The entrepreneur coordinates all the other three factors (land, labour and capital) of production. Entrepreneur is rewarded for his srvices in the form of profit.

1. Meaning of Profit

Profit is a return to the entrepreneur for the use of his entrepreneurial ability. It is the net income of the organizer. In other words, profit is the amount left with the entrepreneur after he has payments made for all the other factors (land, labour and capital) used by him in the production process. However, there are other versions also.

2. Kinds of Profit

1.        Monopoly Profit: Profit earned by the firm because of its monopoly control.

2.        Windfall Profit: Some times, profit arises due to changes in price level. Profit is due to unforeseen factors.

3.        Profit as functional reward: Just like rent, wage and interest, profit is earned by the entrepreneur for his entrepreneurial function.

Concepts of Profit

a. Gross Profit

Gross Profit is the surplus which accrues to a firm when it subtracts its Total Expenditure from its Total Revenue.

Gross Profit = Total Revenue-Total cost

Here cost implies explicit costs only (Normally economic cost, social cost and environmental cost are not considered by the Accountants in India).

b. Net Profit or Pure Profit or Economic profit or True profit

Net or pure or economic or true profit is the residual left with entrepreneur after deducting from Gross profit the remuneration for the self-owned factors of production, which are called implicit cost.

Net Profit =  Gross Profit-Implicit costs

c. Normal Profit

It refers to the minimum expected return to stay in business.

d. Super Normal Profit

Super normal profits are over and above the normal profit.

Super Normal Profit  =  Actual profit- Normal profit