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RENT SEEKING: The inclination of everyone who is alive and breathing to get as much as they can for themselves. These stems from the idea of economic rent, which is a payment over above the opportunity cost. People are said to be rent seeking when they try to get higher wages, more profit, or any other payment over above the minimum they would be willing to accept.
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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, 2000-2024. [Accessed: April 25, 2024].
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Today, you are likely to spend a great deal of time at a dollar discount store looking to buy either a remote controlled World War I bi-plane or a wall poster commemorating Thor Heyerdahl's Pacific crossing aboard the Kon-Tiki. Be on the lookout for infected paper cuts.
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It's estimated that the U.S. economy has about $20 million of counterfeit currency in circulation, less than 0.001 perecent of the total legal currency.
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"Sometimes when you innovate, you make mistakes. It is best to admit them quickly and get on with improving your other innovations. " -- Steve Jobs, Apple Computer founder
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BOP
Balance of Payments
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