The difference between Economice Profit and Normal Profit

2007-11-01 11:37 pm
What is the difference between Economice Profit and Normal Profit ?

請用英文回答 ... 10分 , 謝謝 T^T

回答 (2)

2007-11-02 1:44 am
✔ 最佳答案
In economics, a firm is said to be making a normal profit when total revenues equal total costs. These normal profits then match the rate of return that is the minimum rate required by equity investors to maintain their present level of investment. Economically, the "normal profit" is thus treated as a cost, and recognized as one of the two components of the cost of capital.
An economic profit arises when its revenue exceeds the total (opportunity) cost of its inputs, noting that these costs include the cost of equity capital that is met by "normal profits.
2007-11-02 1:29 pm
Normal profit could be the opportunity cost of what you give up when you decide to enter an industry. For example, person A is a teacher and earning $30000 per year. One day he decides to opening a shop. If the costs of the shop is $10000 and the total revenue is $40000 per year, he is said to be making normal profit. This is because the total cost ( $10000+$30000) = total revenue ($40000). You can say normal profit is included in total cost. Also, the normal profit could be defined as the amount making in order to make the person stay in the industry. This is because if the person is making less than $30000, he/she will have no point to stay in the industry. ( e.g the total revenue is $20000, so total revenue less than total cost, not making normal profit).

Economic Profit( I think it is also Super Normal Profit) is when the total costs are less than total revenue. Umm.....it is easier to explain in an example. Using the example above, the teacher used to earn $30000 per year. If his shop's total revenue is $50000, he will make $30000 normal profit and the costs of the shop are $10000, so the total cost is $40000. As a result. he also makes an Economic Profit of $10000 becasue total cost
參考: myself--theory of firms


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