Types of Profit

• Profit

  Total revenue minus total cost
• Economists' view of profit


  • Include explicit costs (physical, fixed, variable) and implicit costs (opportunity cost)
  • Accountants' view of profit
  • Include only explicit costs, ignore opportunity cost
• Normal profit


  Minimum level of profit required to keep factors of production in current use
• Super normal (abnormal) profit

  Economic profit greater than normal profit
• Sub normal profit (economic loss)

  Economic profit less than normal profit
• Determining type of profit

  1. Average revenue (AR) equals average cost (AC): Normal profit

  2. AR greater than AC: Super normal profit

  3. AR less than AC: Sub normal profit