Profit

Profit

The financial gain obtained when the revenue generated from business activities exceeds the costs, expenses, and taxes. It serves as a key indicator of a company's financial health and performance.

Normal profit

is the minimum profit necessary to keep a firm in business, representing the opportunity cost of the resources used in production.

Supernormal profit

is the profit that exceeds normal profit, indicating that a firm is earning more than the minimum required to keep it in business. It typically arises when a firm has a competitive advantage or unique product offerings.

The role of profit in a market economy

is to allocate resources efficiently, incentivize production, and drive innovation and competition among firms.

Normal profit diagram

Supernormal profit diagram