Normal profit is a situation where a firm makes sufficient revenue to cover its total costs and remain competitive in an industry. In measuring normal profit, we include the opportunity cost of working elsewhere. When a firm makes normal profit we say the economic profit is zero. Normal profit = total revenue – total costs …
An assumption in classical economics is that firms seek to maximise profits. Profit = Total Revenue (TR) – Total Costs (TC). Therefore, profit maximisation occurs at the biggest gap between total revenue and total costs. A firm can maximise profits if it produces at an output where marginal revenue (MR) = marginal cost (MC) Diagram …
Profit is the surplus revenue after a firm has paid all its costs. Profit can be seen as the monetary reward to shareholders and owners of a business. In a capitalist economy, profit plays an important role in creating incentives for business and entrepreneurs. For an incumbent firm, the reward of higher profit will encourage …
Profit satisficing is a situation where there is a separation of ownership and control. As a result, the owners are likely to have different objectives to the managers and workers. In short, owners wish to maximise profits, but workers and managers may not. It is an example of the principal-agent problem. The shareholder is the principal. …
The essence of profitability is a firms Revenue – Costs with revenue depending upon price and quantity of the good sold. These factors will all determine the profitability of firms 1. The degree of competition a firm faces. If a firm has monopoly power then it has little competition. Therefore demand will be more inelastic. …
Level of Company Gross Profit in the UK Profitability of companies – ONS In 2016, Gross profit by UK non-financial companies was £2,993,446 million or £2,993 bn Cash reserves of companies have increased. In 2014, the Bank of England estimated cash reserves of UK firms at £284 billion See: Cash reserves PNFC – Private non-financial companies. …
Readers Question: Can you please explain how speculators can gain a profit from a speculative attack on currencies? A speculative attack on a currency occurs when ‘investors’ believe that the value of a currency is over-valued and therefore, they sell that currency in anticipation of it falling and buy another currency (e.g. sell their holdings …
Profit maximisation is an assumption of classical economics. One can easily understand the logic of pursuing profit maximisation. Profits enable greater wages and dividends for the entrepreneurs who set up the company. Profit can be used to finance investment in expanding the company Profit provides a fall back for difficult times However, despite the benefits …