makes the decisions of how and when to produce by taking a risk in anticipating
the demand. Some argue it's a special form of labour. Profit might actually be
buy or hire labour, capital etc. necessary
combine the resources at
a cost-minimising way,
sell products in the most
advantageous way (profit maximising assumption).
Profit acts as
an incentive to firms, as a measure of efficiency and as a spur (stimulus) to
the inventions of new products.
must achieve the best factor mix that is characteristic to particular economy
(capital intensive farming in UK, land intensive in Canada).
1.The money left over after all expenses have been paid for
accountant. Much are implicit costs of other factors. Many figures are
estimated. Profit either before or after tax. Depreciation and inflation must
- profit after all costs + interest and depreciation.
profit - net profit before depreciation and interest.
2.Economist view is the money left over after opportunity cost
(abnormal profit). Normal profit is the amount sufficient to keep the firm in
industry. Does not include return on capital, land etc.
Innovation will lead to big short - term
Profit is the
reward for risk successfully taken:
Speculative risk - game
on changing prices
Economic risk - supply on
anticipation of demand
Monopoly profits - reaping a reward without taking risk (also
for unions). Factors that are earning economic rent can be said to earn MP as
Government controls profits (17% of GDP only) because:
profit (2% of GDP).
- as part of an incomes policy or dealing with monopoly profits.
2.Taxation - fiscal weapons, corporation tax.
Consequences:Forcing firm to a loss
Taking away incentive
Product will become uncompetitive abroad
Double-bluff of capitalism - ploughed
backed profits (not taxed) will make more in future and improve the dividend