Profit (economics) | Wikipedia audio article
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Date: 2018-11-27

This is an audio version of the Wikipedia Article:
Profit (economics)

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SUMMARY
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In economics, profit in the accounting sense of the excess of revenue over cost is the sum of two components: normal profit (regular income) and economic profit (loss of the difference of income and sale output of the opportunity cost of the inputs used, or simplified: bulk profit - costs of buying stock of product = re balanced profit or economic profit).  Normal profit is the profit that is necessary to just cover the opportunity costs (the value of the best alternative solution) of the owner-manager or of the firm's investors. In the absence of this much profit, these parties would withdraw their time and funds from the firm and use them to better advantage elsewhere. In contrast, economic profit, sometimes called excess profit, is profit in excess of what is required to cover the opportunity costs.
The enterprise component (basically the "stocks") of normal profit is the profit that a business owner considers necessary to make running the business worth his or her while, i.e., it is comparable to the next-best amount the entrepreneur could earn doing another job. Particularly if enterprise is not included as a factor of production, it can also be viewed as a return to capital for investors including the entrepreneur, equivalent to the return the capital owner could have expected (in a safe investment), plus compensation for risk. Normal profit varies both within and across industries; it is commensurate with the riskiness associated with each type of investment, as per the risk-return spectrum (relationship between the amount of return gained on an investment and the amount of risk undertaken in that investment. The more return sought, the more risk that must be undertaken).
Only normal profits arise in circumstances of perfect competition (where the state of supply and demand are stabilized) when long-run economic equilibrium (a state where economic forces such as supply and demand are balanced and in the absence of external influences the (equilibrium) values of economic variables will not change); there is no incentive for firms to either enter or leave the industry.