Question

Excess profit and normal profit distinguish between

Answer 1

In accounting, profit means surplus, i.e. the excess of total revenue over the expenses. Such a profit is known as accounting profit. On the other hand, in economics, you might have heard the term economic profit, which is nothing but the amount left over after deducting all implicit and explicit costs.

Answer 2

Normal and excess profits can be distinguished in the following way.

• Normal profits are the profits that a businessman expects to earn from the capital he has invested in his business.
• It occurs when the company's total revenue is equal to its total revenue. Here, total cost includes both implicit and explicit costs.
• Normal profits are also different from accounting profits. Accounting profit does not include implicit costs when calculating profits.
• Excess profit is the difference between actual profits and normal profits.
• It is a profit of a firm over and above what provides its owners with a normal return to capital.
• Excess profits are always more than normal profits.
• Excess profit is also different from accounting profit.

#SPJ2