Profit

Profit is an income distributed to the owner in a profitable market production process (business). Profit is a measure of profitability which is the owner’s major interest in income formation process of market production. There are several profit measures in common use.ncome formation in market production is always a balance between income generation and income distribution. The income generated is always distributed to the stakeholders of production as economic value within the review period. The profit is the share of income formation the owner is able to keep to himself in the income distribution process. Profit is one of the major sources of economic well-being because it means incomes and opportunities to develop production. The words income, profit and earnings are substitutes in this context.when the quality-price-ratio of the commodities improves and more satisfaction is achieved at less cost. Improving the quality-price-ratio of commodities is to a producer an essential way to enhance the production performance but this kind of gains distributed to customers cannot be measured with production data.
Economic well-being also increases due to the growth of incomes that are gained from the growing and more efficient market production. Market production is the only one production form which creates and distributes incomes to stakeholders. Public production and household production are financed by the incomes generated in market production. Thus market production has a double role in creating well-being, i.e. the role of producing developing commodities and the role of creating income. Because of this double role, market production is the “primus motor” of economic well-being and therefore here under review.

Normal profit is a component of (implicit) costs and not a component of business profit at all. It represents the opportunity cost, as the time that the owner spends running the firm could be spent on running a different firm. The enterprise component of normal profit is thus the profit that a business owner considers necessary to make running the business worth her or his while i.e. it is comparable to the next best amount the entrepreneur could earn doing another job.^[1] Particularly if enterprise is not included as a factor of production, it can also be viewed a return to capital for investors including the entrepreneur, equivalent to the return the capital owner could have expected (in a safe investment), plus compensation for risk.^[2] In other words, the cost of normal profit varies both within and across industries; it is commensurate with the riskiness associated with each type of investment, as per the risk-return spectrum

Economic profit does not occur in perfect competition in long run equilibrium; if it did, there would be an incentive for new firms to enter the industry, aided by a lack of barriers to entry until there was no longer any economic profit.As new firms enter the industry, they increase the supply of the product available in the market, and these new firms are forced to charge a lower price to entice consumers to buy the additional supply these new firms are supplying as the firms all compete for customers (See "Persistence" in the Monopoly Profit discussion)Incumbent firms within the industry face losing their existing customers to the new firms entering the industry, and are therefore forced to lower their prices to match the lower prices set by the new firms. New firms will continue to enter the industry until the price of the product is lowered to the point that it is the same as the average cost of producing the product, and all of the economic profit disappears When this happens, economic agents outside of the industry find no advantage to forming new firms that enter into the industry, the supply of the product stops increasing, and the price charged for the product stabilizes, settling into an equilibrium.

Economic profit is, however, much more prevalent in uncompetitive markets such as in a perfect monopoly or oligopoly situation. In these scenarios, individual firms have some element of market power: Though monopolists are constrained by consumer demand, they are not price takers, but instead either price-setters or quantity setters.he social profit from a firm's activities is the normal profit plus or minus any externalities or consumer surpluses that occur in its activity. A firm may report relatively large monetary profits, but by creating negative externalities their social profit could be relatively small.
Profitability is a term of economic efficiency. Mathematically it is a relative index – a fraction with profit as numerator and generating profit flows or assets as denominator.

Maximization

It is a standard economic assumption (though not necessarily a perfect one in the real world) that, other things being equal, a firm will attempt to maximize its profits.Given that profit is defined as the difference in total revenue and total cost, a firm achieves a maximum by operating at the point where the difference between the two is at its greatest.nother significant factor for profit maximization is "Market Fractionation". A company may sell goods in several regions or in several countries. Profit is maximized by treating each location as a separate market. Rather than matching supply an demand for the entire company the matching is done within each market. Each market has different competition, different supply constraints (like shipping) and different social factors. When the price of goods in each market area is set by each market then overall profit is maximized.