Normal and super normal profit

Normal profit and super normal profit (excess profit):

Pure profit (i.e., net profit) can be categorized into normal and supernormal profit. Normal profit is the minimum essential to guarantee that an entrepreneur will carry on bearing uncertainty and running the firm. That portion of pure profit that is in excess of normal profit is excess or excess profit or supernormal profit. However firms under perfect competition might make excess profits in the short run, it will vanish in the long run. Only a monopoly can earn surplus profits for an indefinite period.

The early economists made no distinction among interest and profits since they considered the capitalist and the entrepreneur as one and similar person. The entrepreneur require not essentially be the owner of capital. It is leadership instead of ownership that is significant in the case of an entrepreneur. Nowadays, organization has become a different factor of production. Profits vary from other incomes in three manners.

At first, it is a residual income. Second, there might be broad fluctuations in profits and sometimes, they might be negative. That is, there might be losses. We can’t think of negative wages. Third, profits are unsure.

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