# profit

(noun)

## Definition of profit

Total income or cash flow minus expenditures. The money or other benefit a non-governmental organization or individual receives in exchange for products and services sold at an advertised price.

Source: Wiktionary - CC BY-SA 3.0

## Examples of profit in the following topics:

• ### Difference Between Economic and Accounting Profit

• The term "profit" may bring images of money to mind, but to economists, profit encompasses more than just cash.
• In general, profit is the difference between costs and revenue, but there is a difference between accounting profit and economic profit.
• The biggest difference between accounting and economic profit is that economic profit reflects explicit and implicit costs, while accounting profit considers only explicit costs.
• Economic profit includes the opportunity costs associated with production and is therefore lower than accounting profit.
• Economic profit also accounts for a longer span of time than accounting profit.
• Economic profit consists of revenue minus implicit (opportunity) and explicit (monetary) costs; accounting profit consists of revenue minus explicit costs.
• ### Profit Maximization Function for Monopolies

• This leads to the first-order condition for the profit-maximizing quantity q: 0=∂π∂q=p(q)+qp′(q)−c′(q) The above first-order condition must always be true if the firm is maximizing its profit - that is, if p(q)+qp′(q)−c′(q)  is not equal to zero, then the firm can change its price or quantity and make more profit.
• The firm's profit, as shown above, is equal to the difference between the quantity produces multiplied by the price, and the total cost of production: p(q)q−c(q).
• Using the first order condition, we know that when profit is maximized, 0=p(q)+qp′(q)−c′(q).
• This is the profit maximizing quantity of production.Consider the diagram illustrating monopoly competition .
• Fourth, the monopoly profits from the increase in price, and the monopoly profit is illustrated.
• Monopolies maximize profit by setting marginal cost equal to marginal revenue.
• ### The Supply Curve in Perfect Competition

• Profit MaximizationProfit maximization is the short run or long run process that a firm uses to determine the price and output level that returns the greatest profit when producing a good or service.
• Graphing Profit MaximizationThere are two ways in which cost curves can be used to find profit maximizing quantities: the total revenue-total cost perspective and the marginal revenue-marginal cost perspective.
• When a table of costs and revenues is available, a firm can plot the data onto a profit curve.
• The profit maximizing output is the one at which the profit reaches its maximum .The marginal revenue-marginal cost perspective relies on the understanding that for each unit sold, the marginal profit equals the marginal revenue (MR) minus the marginal cost (MC).
• Profit maximization is directly impacts the supply and demand of a product.
• The total revenue-total cost perspective and the marginal revenue-marginal cost perspective are used to find profit maximizing quantities.
• ### Sources and Determinants of Profit

• Economic profit is total revenue minus explicit and implicit (opportunity) costs.
• If economic profit is positive, other firms have an incentive to enter the market.
• If profit is zero, other firms have no incentive to enter or exit.
• In the short run, a firm can make an economic profit.
• An economic profit of zero is also known as a normal profit.
• Whether economic profit exists or not depends how competitive the market is, and the time horizon that is being considered.
• ### Monopoly Price and Profit

• Monopolies, unlike perfectly competitive firms, are able to influence the price of a good and are able to make a positive economic profit.
• We know that all firms maximize profit by setting marginal costs equal to marginal revenue.
•  At this point, the price of widgets is $13.50, the monopoly's total revenue is$40.50, the total cost is $18, and profit is$22.50.
•  For comparison, it is easy to see that if the firm produced two widgets price would be $14 and profit would be$20; if it produced four widgets price would be $13 and profit would again be$20.
• Q=3 must be the profit-maximizing output for the monopoly.Graphically, one can find a monopoly's price, output, and profit by examining the demand, marginal cost, and marginal revenue curves.
• Monopolies can influence a good's price by changing output levels, which allows them to make an economic profit.
• ### Marginal Cost Profit Maximization Strategy

•  Marginal Cost-Marginal Revenue PerspectiveProfit maximization is the short run or long run process by which a firm determines the price and output level that will result in the largest profit.
• This strategy is based on the fact that the total profit reaches its maximum point where marginal revenue equals marginal profit .
• This is the case because the firm will continue to produce until marginal profit is equal to zero, and marginal profit equals the marginal revenue (MR) minus the marginal cost (MC).
•  Another way of thinking about the logic is of producing up until the point of MR=MC is that if MR>MC, the firm should make more units: it is earning a profit on each.
• In order to maximize profit, the firm should set marginal revenue (MR) equal to the marginal cost (MC).
• ### Conditions of Perfect Competition

• The profit is the difference between a firm's total revenue and its total cost.
• When price is greater than average total cost, the firm is making a profit.
• A firm in a perfectly competitive market may generate a profit in the short-run, but in the long-run it will have economic profits of zero.
• ### Production Outputs

• Microeconomics assumes that firms and businesses are profit-seeking.
•  There are four different types of conditions that generally describe a firm's profit as described in :Economic Profit: The firm's average total cost is less than the price of each additional product at the profit-maximizing output.
• The economic profit is equal to the quantity output multiplied by the difference between the average total cost and the price.
•  Normal Profit: The average total cost equals the price at the profit-maximizing output.
• In this case, the economic profit equals zero.
• ### Long Run Outcome of Monopolistic Competition

• Also, since a monopolistic competitive firm has power over the market that is similar to a monopoly, its profit maximizing level of production will result in a net loss of consumer and producer surplus.Setting a Price and Determining ProfitLike monopolies, the suppliers in monopolistic competitive markets are price makers and will behave similarly in the long-run.
• The profit maximizing price of the good will be determined based on where the profit-maximizing quantity amount falls on the average revenue curve.While a monopolistic competitive firm can make a profit in the short-run, the effect of its monopoly-like pricing will cause a decrease in demand in the long-run.
• The decrease in demand and increase in cost causes the long run average cost curve to become tangent to the demand curve at the good's profit maximizing price.
• Second, the firm will only be able to break even in the long-run; it will not be able to earn an economic profit .
• ### Short Run Outcome of Monopolistic Competition

• Also, since a monopolistic competitive firm has powers over the market that are similar to a monopoly, its profit maximizing level of production will result in a net loss of consumer and producer surplus, creating deadweight loss.Setting a Price and Determining ProfitLike monopolies, the suppliers in monopolistic competitive markets are price makers and will behave similarly in the short-run.
• The profit maximizing price of the good will be determined based on where the profit-maximizing quantity amount falls on the average revenue curve.
• The profit the firm makes is the the amount of the good produced multiplied by the difference between the price minus the average cost of producing the good.
• This causes deadweight loss for society, but, from the producer's point of view, is desirable because it allows them to earn a profit and increase their producer surplus.Because of the possibility of large profits in the short-run and relatively low barriers of entry in comparison to perfect markets, markets with monopolistic competition are very attractive to future entrants.