Unveiling the Layers of Profit: From Normal to Monopolistic and Windfall Gains

NET PROFIT:

Net profit refers to the income or reward that an employer receives from taking risks in business situations, facing uncertainties, predicting future demand and making decisions in business. In fact, this is the income that an employer gets in return for paying his expenses.

 

ESSENTIAL CONCEPTS OF PROFIT:

It is also important to understand the following concepts in terms of profitability.

 

1:-Normal Profit:

It refers to the profit that a firm or industry earns when it is producing a standard quantity of a good, i.e., at which its marginal cost is equal to its marginal revenue and its average cost is its average receiving. Under perfect competition, a firm or an industry can become abnormally profitable in a short period of time or face the loss, but in the long run, the profit comes to the level of normal profit.

 

2:- Monopolistic profit:

A monopoly is a type of market in which one employer controls all production of a good and can affect the price directly. So a monopolist earns profit not only in short term but also in long term.

 

 

In the case of a monopoly, since there are no close substitutes for the new product it creates, therefore charges generally more. This is called excess profit or monopoly profit.

 

3:-Windfall Profit:

windfall profit is a form of profit that occurs due to a sudden change in business conditions, such as war, equipments floods, earthquakes, epidemics, political and economic changes, etc. In case of war the manufacturer of equipment, repairers and stockists increase prices immediately. In view of the urgent need of dry food and epidemic medicine etc. in floods, their profits increase. Similarly, an economic change, such as a change in import and export policy, may also lead to an increase in windfall profits, such as the imposition of import duties on the cost of spare parts for cars, and an windfall increase in the profits of the business firm concerned.