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S CORPORATION: A legal firm type that is officially structure as a corporation, especially with limited liability of the owners, but is able to avoid the double taxation of profits through the use of a special section of the Internal Revenue Service tax code (Chapter S). The profit of an S corporation is considered the income of its owners and is thus taxable only as individual income. There are, however, limits on who can be an owner of an S corporation.
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                           NORMAL PROFIT: The opportunity cost of using entrepreneurial abilities in the production of a good, or the profit that could be received by entrepreneurship in another business venture. Like the opportunity costs of other resources, normal profit is deducted from revenue to determine economic profit. It is, however, never included as an accounting cost when accounting profit is computed. Normal profit is the opportunity cost of using entrepreneurship in production. The notion that entrepreneurship incurs an opportunity cost in production is often overlooked in the business world because it does not involve an explicit payment, that is, accounting cost. For most business firms, normal profit is invariably combined with economic profit and simply designated as accounting profit.For example, a worker like Phoebe Pankovic might be paid $10 an hour to produce Wacky Willy Stuffed Amigos (those cute and cuddly armadillos and tarantulas) to compensate her for a $10 wage that could be earned producing another good, such as Hot Momma Fudge Bananarama Ice Cream Sundaes. In a similar manner, the entrepreneur who organizes the production of Wacky Willy Stuffed Amigos, William J. Wackowski, foregoes profit that could be earned organizing the production of another good, such as Hot Momma Fudge Bananarama Ice Cream Sundaes. This foregone profit is an opportunity cost of the entrepreneurship, it is normal profit, and is deducted from revenue to calculate economic profit. However, it is NOT deducted from revenue to calculate accounting profit. Normal profit plays a key role in the long-run production decision of a firm, that is, whether or not to remain in business. As a general rule, a firm compares accounting profit generated from one production, with what could be generated from another production. If accounting profit is greater in the alternative activity, then the firm is inclined to shut down current production, and begin the alternative. If, for example, William J. Wackowski can generate more profit selling hot fudge sundaes than stuffed animals, then he is likely to shut down The Wacky Willy Company and start up a Hot Momma Fudge Bananarama Ice Cream Shoppe. This decision is conceptually captured by normal profit. Normal profit is what William J. Wackowski would be earning with hot fudge sundae production. By deducting this alternative profit from his reported accounting profit, the result is economic profit. If economic profit is greater than zero, then William is doing better, and earning more, making stuffed animals. If economic profit is less than zero (even though accounting profit is positive), then William could do better, and earn more, by switching his entrepreneurship to hot fudge sundae production.
Recommended Citation:NORMAL PROFIT, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2022. [Accessed: September 27, 2022].
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Today, you are likely to spend a great deal of time calling an endless list of 800 numbers hoping to buy either an AC adapter for your CD player or storage boxes for your family photos. Be on the lookout for defective microphones.
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Potato chips were invented in 1853 by a irritated chef repeatedly seeking to appease the hard to please Cornelius Vanderbilt who demanded french fried potatoes that were thinner and crisper than normal.
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"Don't judge each day by the harvest you reap but by the seeds that you plant. " -- Robert Louis Stephenson, writer
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