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The Meaning of Profit || Concept of Profit || +2

The Meaning of Profit

The Meaning of Profit

The meaning of profit refers to the reward for good management of an organization. It is the difference between total revenue and total cost. If the total revenue is equal to the total cost, there is no profit or profit becomes zero. In other words, profit is the payment made to an entrepreneur for the entrepreneurial services in the process of production. According to Marshall Profit is the reward for an entrepreneur.

Generally, profit is divided into two types.

  • Net profit.
  • Gross profit.

Net profit

The term profit in economics refers to net profit. It is also known as pure profit which includes risk, compensation, a reward for good bargaining skill and reward for efficient and monopoly returns. In other words, net profit is the difference between gross profit and total implicit cost.

Gross profit

Gross profit is the total surplus of the entrepreneur after deducting total expenditure from his total received. It is also known as the amount that remains after paying the remuneration to other factors of production like land, labour, capital, etc. used in the production process. In other words, gross profit is the difference between total revenue and total explicit cost.

If you liked our content The Meaning of Profit, then please don’t forget to check our other content The Risk Theory of Profit

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