Profit

What is the formula for calculating profit?

Profit = Total Revenue (TR) - Total Cost (TC)

What are explicit costs made up of?

Explicit costs consist of Total Fixed Costs (TFC) + Total Variable Costs (TVC).

How do accountants calculate profit?

Accountants calculate profit using explicit costs only.

What are implicit costs?

Implicit costs refer to opportunity costs.

How do economists calculate profit?

Economists calculate profit using both explicit and implicit costs.

What is considered a normal profit?

If economic profit = 0, it is classed as a normal profit.

What is a supernormal profit?

If economic profit > 0, it is classed as a supernormal profit (abnormal profit).

What does subnormal profit refer to?

If economic profit < 0, it is classed as subnormal profit (economic loss).

What is normal profit in economic terms?

Normal profit is the minimum level of profit required to keep factors of production in their current use.

What does it indicate if economic profits are below 0?

It indicates a need to pursue a different product due to opportunity cost (leave the market).

Where is normal profit visible on a graph?

Normal profit is visible where Average Revenue (AR) = Average Cost (AC).

How is supernormal profit indicated on graphs?

Supernormal profit is indicated where Average Revenue (AR) > Average Cost (AC).

How can subnormal profit be identified on graphs?

Subnormal profit is indicated where Average Revenue (AR) < Average Cost (AC).