
Definition Of Normal, Subnormal And Supernormal Profit
Economics notes
Definition Of Normal, Subnormal And Supernormal Profit
➡️ Revenue is the total amount of money a business earns from the sale of goods or services. It is calculated by multiplying the quantity of goods or services sold by the price of each unit.
➡️ Total Revenue (TR) is the total amount of money earned from the sale of all goods or services. It is calculated by multiplying the quantity of goods or services sold by the price of each unit.
➡️ Average Revenue (AR) is the average amount of money earned from the sale of all goods or services. It is calculated by dividing the total revenue by the quantity of goods or services sold.
➡️ Marginal Revenue (MR) is the additional amount of money earned from the sale of one additional unit of a good or service. It is calculated by dividing the change in total revenue by the change in quantity of goods or services sold.
What is the difference between normal, subnormal, and supernormal profit?
Normal profit refers to the minimum level of profit required to keep a business running in the long run. Subnormal profit occurs when a business is not earning enough to cover its costs and is at risk of going out of business. Supernormal profit, on the other hand, is profit that exceeds the normal level and is considered above-average or exceptional.
How do normal, subnormal, and supernormal profit affect a business's decision-making process?
Normal profit is necessary for a business to continue operating, but it does not provide any incentive for the business to expand or innovate. Subnormal profit signals that a business is not performing well and may need to make changes to improve its profitability. Supernormal profit provides an incentive for a business to expand and invest in new projects or products.
What factors determine whether a business earns normal, subnormal, or supernormal profit?
The level of competition in the market, the cost of production, and the demand for the product or service all play a role in determining a business's profit level. If there is high competition and low demand, a business may only earn subnormal profit or even incur losses. If there is low competition and high demand, a business may earn supernormal profit. The cost of production also affects profit, as higher costs will reduce profit margins.