What is profit? There is accounting profit discussed in the textbook: profit = t

Question

What is profit? There is accounting profit discussed in the textbook: profit = total revenues – explicit costs Let me relate profit to the factors of production. The three factors of production according to the textbook are land, labor, and capital. Let me add a fourth factor found in many economics textbooks: a return to the entrepreneur! (Entrepreneurs provide two services to society: organize resources and assume risk.) So how does a firm or entrepreneur maximize its profits? The answer is simple: provide society what it wants. (Note: this may be different from what society needs.) Note: Given this perspective, profit is something inherently good, something to be maximized, not feared. Let’s refine our understanding of this concept. Normal profit is that return necessary to attract and maintain entrepreneurial participation in some economic activity. Economic rent is return greater than normal profit. Comment.

Explanation / Answer

Profit is very much important from capitalist point of view as not profit is earned on the invested capital leads to no profit situation. Capitalist lead to increase the capital formation and help in increase the economic activities like production, production is done by various factor of production contributing production of various goods and services. Capitalist hire labor, land capital and entrepreneur, these factor production receive wages, rent interest and profit.

Accounting Profit / total profit. = total revenue – explicit cost

Accounting profit indicates total revenue- explicit cost and economic profit indicates accounting profit- implicit cost

Entrepreneur bear the risk and he is award by profit so entrepreneur might be capitalist who take the services of factor of production and pay their remuneration and receive his profit for showing his skills and capabilities to bear risk and generating profit. Entrepreneur takes risk of producing goods and services as the demand of society and bears the responsibility of providing with fare price law and quality. This is kind of risk that the entrepreneur has to bear this for this he is paid profit.
Entrepreneur earns profit that can be super profit and normal profit. Entrepreneur wants to earn maximum profit for the production of goods and services and discharge many responsibilities for the same but he does not always earn super normal profit.

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