Question

A normal profit is considered a cost because?

1) this is the amount required to ensure continued supply of the product.
2) it has elements of revenue and cost.
3) it has to be paid to the IRS.
4) it cannot be counted as revenue.

Answer 1

Normal profit is viewed as a cost because it represents the minimum profit that enables a firm to continue operating. It encompasses the opportunity cost of capital and entrepreneurial effort, ensuring product supply.

Step-by-step explanation:

A normal profit is considered a cost because it is the minimum amount of profit necessary for a firm to stay in business in the long run. This concept ties into the idea of economic profit, which is total revenue minus total cost, including both explicit and implicit costs. Therefore, normal profit is viewed as a cost because it is the amount required to ensure the continued supply of a product; it represents the opportunity cost of capital and the compensation for entrepreneurship.