Supernormal Profit and Market Economy Supernormal gain grounds are services make in excess of normal profitss i.e. excess profit made over the normal profit, while normal profit is the amount of money made by an organization that is barely enough to cover its expenses. Supernormal profits can be in the long run or in the fiddling run. But the incorruptible which innovates and launches new products make supranormal profit in short run. Firms that make supernormal profits in any market are giving indications that the market is possible and that there is an opport unit of measurementy for money to be made. These prompts new suppliers into the market and the theory of motivation and supply play a major(ip) role in influencing how the supernormal profits are competed away. However, how unshakable the supernormal profit is competed away depends on the barriers to entry in the market or industry. In short run devoted which innovates acts as monopolist and so chooses price constrained by the demand curve. It maximize profits where MR (Marginal Revenue) = MC (Marginal Cost). The supernormal / sparing profit is shown in the diagram below.
The supernormal profit per unit is the difference between the av periodge revenue and average cost. presentations are the main driving force underlying the economic growth.
Innovation needs money and investment. Entrepreneurs and Firms introduce this into the market to earn supernormal profit in short run. Innovation creates demand in the market which gives the firm a monopolistic situation in the market and hence an opportunity to earn the supernormal profit. erst the innovation becomes common, competitors come into the market with same innovation and the demand and supply reaches equilibrium. Then the price of innovation stabilises in market. The firm who is competitive and understand the market continuously goes for R&D and innovation by reinvesting the supernormal profit. In the new era the firm has changed its approach from Profit Maximisation to...If you want to fix a full essay, order it on our website: Ordercustompaper.com
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