Profit - Normal, Supernormal, Subnormal Year 2 Micro (8)

Profit

Pie symbol (profit) = TR - TC

Total Cost (explicit)

Physical Cost which is the TFC and TVC, this is the explicit cost

Total Cost (implicit)

Implicit is the opportunity cost

Economic Profit

Economics consider both the implicit and explicit costs within the profit equation

Accounting Profit

They only consider explicit cost.

Economic Profit names

If £0 then it is a normal profit. If £10,000 (or +) then called supernormal profit. If -£10,000 then its called subnormal profit.

Normal Profit

Normal Profit is the minimum level of profit required to keep factors of production in there current use. As long as your making normal profit than you should continue. If subnormal then you should make the other thing, If your making a loss then switch your factors of production to your opportunity cost, e.g. Laptops and Tablets example. If making supernormal profit than carry on.

Supernormal Profit

Any profit made above normal profit (+)

Subnormal Profit

Any economic profit below normal profit, i.e. an economic loss, so profit being made is not enough to cover your opportunity cost of production.

Normal Profit on diagram

AR = AC

Supernormal Profit

AR > AC

Subnormal Profit

AR < AC