Normal profit

Profit is a financial measure of the economic performance of a particular enterprise. Profit is the difference between the total revenue received from the sale of products and the total economic costs for the production of these products.

From the profit, an increase in the wage fund, financing of measures for the socio-economic and scientific and technical development of the firm is carried out. Profit is also an indicator that reflects the efficiency of production, the quality and volume of output, the level of its cost, the state of labor productivity. In addition, profit has a stimulating effect on the intensification of production, strengthening commercial calculation. Profit is not just a source of ensuring the company's internal needs, but it is also of great importance for the formation of budgetary resources, charitable and extra-budgetary funds.

The desire to get a big profit, to strengthen the place on the market, to bypass its competitors is the constantly acting motives of entrepreneurial activity, which in turn push the entire economy forward. The expectation of profit encourages entrepreneurs to more rationally use resources and organize production in order to achieve minimum costs. Costs and profits are interrelated. The higher the costs of production and the less efficiently the resources spent, the lower the profit. Ultimately, this contributes to a more complete satisfaction of needs and economic growth.

In terms of the composition of costs, accounting and economic profit are allocated . There are also such concepts as maximum marginal and normal profit.

Under normal profits, understand the size of the minimum remuneration for the entrepreneur, who will retain it in the chosen industry. In the event that the profit received by the entrepreneur is lower than the normal profit, then the capital will be rushed to another sphere. The transfer of capital from a less profitable industry will then lead to an increase in its profitability, if the demand for these goods is constant, then the capital, smaller by mass, can expect to receive a normal profit. If, in this area, entrepreneurs will profit above normal, then capital will flow into this sector from other, less profitable sectors. And again the profit will reach the normal level. Normal profit is a certain percentage of the capital, which depends on the type of activity.

Also, under normal profit understand the costs of the entrepreneur, which are not included in the costs and are not reflected in the accounting documentation in the entrepreneurial costs, conditionally related to accounting profit. Thus, the normal profit of the entrepreneur is considered as an element of internal costs, that is, as compensation for the functions performed by the entrepreneur. As an example, we can consider the situation when the sole owner of a small firm uses only money-capital and own labor. He does not bear external costs for payment of wages and interest. However, this entrepreneur could put capital in the bank and get his interest on the deposit. In addition, the entrepreneur, managing his firm, refuses as a result of the earnings that he could receive by offering management services to another company. Normal profit is the minimum fee that is required to retain cash and entrepreneurial abilities in that firm. If the minimum fee is not provided, then the entrepreneur will have a question about a possible refusal from this type of activity.