Brief note on the actual meaning of Profit



Literally profits means the reward paid for the services of the entrepreneur who is scarce in supply.

Gross profit = Total revenue – Explicit cost. Gross Profit = Net profit + Rent on own land + Interest on own capital + Wages of own labour + Casual gain.

Net profit or economic profit or pure profit is a part of gross profit. Net profit may be zero or negative. Net profit = Gross profit – implicit cost. Net profit is the exclusive reward for the entrepreneurial function.

Normal profit is known as necessary profit. It is normally expected by a producer in order to continue in his business. It is non-contractual. It forms a part of the average cost.

Super normal profit is the excess over normal profit. It is known as abnormal or excess profit. It may be earned only when the market is imperfect. It is considered a differential surplus in the nature or rent. Wind fall profits due to unforeseen changes in demand and supply conditions like the occurrence of natural calamities and declaration of war, monopoly profits due to absence of competition and profits due to differential ability of the entrepreneur are examples of super-normal profits.