Calculation Of Supernormal And Subnormal Profit
Economics notes
Calculation Of Supernormal And Subnormal Profit
➡️ Normal Profit: Normal profit is the minimum return that an entrepreneur expects from a business venture. It is the minimum return that is necessary to keep the entrepreneur in the business. It is also known as the opportunity cost of the entrepreneur's time and resources.
➡️ Subnormal Profit: Subnormal profit is the profit earned by a business that is lower than the normal profit. It is usually caused by a decrease in demand or an increase in costs.
➡️ Supernormal Profit: Supernormal profit is the profit earned by a business that is higher than the normal profit. It is usually caused by an increase in demand or a decrease in costs.
What is supernormal profit and how is it calculated?
Supernormal profit is the profit earned by a firm that exceeds the normal level of profit that would be expected in a particular industry. It is calculated by subtracting the total cost of production from the total revenue earned by the firm.
What is subnormal profit and how is it calculated?
Subnormal profit is the profit earned by a firm that is below the normal level of profit that would be expected in a particular industry. It is calculated by subtracting the total cost of production from the total revenue earned by the firm.
Why is the calculation of supernormal and subnormal profit important for firms?
The calculation of supernormal and subnormal profit is important for firms because it helps them to understand their profitability and competitiveness in the market. If a firm is earning supernormal profits, it may indicate that it has a competitive advantage over its rivals. On the other hand, if a firm is earning subnormal profits, it may indicate that it is struggling to compete in the market and may need to make changes to its business strategy.