What Is a Normal Profit?

Normal profit (normal profit) refers to the income that a business owner can get if they use resources for other businesses with the same risk, which is an opportunity cost nature.

Normal profit

Normal profit (normal profit) refers to the income that a business owner can get if they use resources for other businesses with the same risk, which is an opportunity cost nature.

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Profit is divided into normal profit and

About the "normal profit" and profit maximization principles

The so-called "normal profit" refers to the compensation that can be paid for the management of the enterprise provided by himself. Obviously, this thing called "normal profit" is the salary you give yourself, which is part of the so-called hidden cost. Therefore, according to the definition of profit, profit, ie economic profit, does not include normal profit. Normal profit is a part of hidden costs and an aspect to be deducted from the benefits.

Hidden costs are not costs, because the actual payment without loss of ownership occurs, but is a benefit. Manufacturers pay their own salaries. Of course, the salary is determined by themselves and it is up to them. If the manufacturer we mentioned earlier does not treat itself as a psychological law, if the manufacturer is still a rational person, the manufacturer is bound to make his salary as high as possible, because he has this power. If there is motivation and conditions, there will be results. However, this salary, which is called normal profit, cannot be infinitely high for itself. It will not exceed the difference between the benefit and the obvious cost.

In this way, we have seen that the concepts of hidden costs and normal profits and the principle of profit maximization are in conflict with each other. This resistance comes from the definition of hidden costs and normal profit, because normal profit is the actual revenue of the manufacturer. He hopes that the greater the benefit, the better. This leads to two goals: to maximize normal profit or Pursue maximum economic profit. This is another dilemma.

If normal profit maximization is a reasonable goal, then economic profit maximization is a dispensable device. Manufacturers only need to name all their economic profits as their normal profits, even if the economic profits are zero. As long as you put it in the manufacturer's own pocket, it doesn't matter what you call it.

However, the manufacturer himself is not at all confused about this problem. The profit concept of the manufacturer is different from the profit concept of the military division he supports, but rather all the actual income including the so-called hidden costs. Vendors who play such clever tricks are masters. Manufacturers know the academic coquetry of economics in this respect, but this coquetry that seems to be disgusting to the owner also provides the master with a way to improve his actual income level, which is the so-called "reasonable tax avoidance" method commonly heard . If the government levies taxes on manufacturers, or if the tax rate levied on sales is higher than the tax rate on profits, the manufacturers will increase the value of profits in the financial statements; otherwise, if the government levies profits based on profits The tax or tax rate on profit income is much higher than the tax rate on other items, then the manufacturer will try to make as many items as possible enter the cost, and even make up the book and reduce the book profit.

In fact, tax policy and accounting have long discovered this problem in economics. Therefore, in the accounting system, there are restrictions on the manufacturer's personal wages, benefits accrual, and travel expenses, to limit such lawful tax evasion by manufacturers. In many places in the coastal areas, many local collective enterprises or bureaucratic individual enterprises with collective or state-owned names have almost every year made their financial statements at a level of small profits or small losses. The pretext of continuing to operate, and the "zero-profit enterprise" can survive for a long time, and the evaded taxes have flowed into some personal pockets.

Therefore, the so-called hidden costs and normal profit concepts are tricks played by economists, and academic research on economics is of little use. The economic theory of 2 + 2 strongly opposes the abuse of the concept of "cost" in economics, because it carries too strong a subjective meaning. From the perspective of 2 + 2, the so-called "hidden cost" is the wages, interest, and land rent paid by the manufacturer itself. It does not involve the transfer of ownership. It is carried out within the owner himself, and the amount is not affected by any Constraints are therefore not economic actions.