Question

Making a profit means that

a) the operation always makes an excess of income over costs.
b) an operation can lose money if there is a "negative" profit which is determined by debt repayment and return on investment including taxes.
c) losses are covered by subsidies in institutional settings.
d) in addition to recovery of costs there is enough left over to pay debts and provide a return to the owner.

Answer 1

Making a profit in business means having enough left over after covering costs to pay debts and provide a return to the owner. Profit is calculated as total revenue minus total cost. It is important to distinguish between accounting profit and economic profit. So the correct answer is option D.

Step-by-step explanation:

Making a profit means that there is a surplus after a business has covered all its costs from the total revenue earned. Profit is calculated as the Total Revenue minus the Total Cost. Businesses in a competitive market view profits as an incentive to grow and invest.

This results in entry of new firms into the market, spurred by the possibility of economic gain. It is important to distinguish between accounting profit, which is total revenue minus explicit costs, and economic profit, which also accounts for implicit costs.

For a business, the goal is not just to recover costs but also to have enough left to pay debts and provide a return to the owner. Therefore, option d) in the question captures the essence of making a profit in a business context.