Profit
Also called: π · Topic: Theory of the Firm, Supply and Perfect Competition · NCERT: Class 7, Ch 12 "Understanding Markets"; Class 8, Ch 7 "Factors of Production"; Class 9, Ch 8 "Building Blocks in Economics: The Problem of Choice"; Class 9, Ch 9 "The Price Puzzle: What Drives the Market"; Class 12, Ch 3 "Production and Costs"; Class 12, Ch 4 "The Theory of the Firm under Perfect Competition"
Meaning
Profit is total revenue minus total cost. It is the firm's earnings after costs. π = TR − TC (π, the Greek letter pi, is the usual symbol.) Economists count all costs in TC. This includes explicit costs such as wages, rent and raw materials. It also includes implicit costs, which are the value of the owner's own money, time and effort. So TC includes normal profit. Profit is also a signal: high profit attracts new firms, and losses push firms out.
Example
In NCERT Exercise 21, the price is ₹10. At 5 units, TR = ₹50 and TC = ₹38, so profit = ₹12. This is the highest profit in the table.
Don't confuse with
- Accounting profit: this is TR minus only explicit costs, so it is larger than economic profit. Zero economic profit still means a positive accounting profit, equal to normal profit.