4.1.4.7 Profit

Question 1

Profit

Answer 1

total rev - total cost

Question 2

The role of profit in an economy

Answer 2

• profit rewards investors
• profit provides funds for investment and
dynamic efficiency
• Profits can also act as a signal and incentive
for new firms
• Scarce economic resources generally flow
where rewards profits are higher.

Question 3

Normal profit

Answer 3

Normal profit is a situation where a firm makes sufficient revenue to cover its total costs and remain competitive in an industry.

Question 4

Supernormal profit

Answer 4

Supernormal profit is defined as extra profit above that level of normal profit. Supernormal profit is also known as abnormal profit.