Explain the concept of profits as used in economics.

Profit is the return to an entrepreneur for bearing the uninsurable risks of production, Or it is the difference between total revenue and total cost.

In economics literature, the concept of profit refers to concepts of normal profit and pure profit.

– Normal profit is the minimum rate of return that a firm must earn to remain in industry. It also refers to the long term earning of the entrepreneurs under competitive conditions

Note: Any excess of total revenue over total cost is called abnormal profit

– Pure profit (economic profit) is a return over and above the opportunity cost in the payment that would be necessary to draw forth the factors of production from their remunerative alternative employment.

Or

It is defined as “residual leftover after all contractual costs have been met, including the transfer costs of management, insurance risks, depreciation and payments to shareholders sufficient to maintain investment at its current level.

Or

Pure profit equals net profit less opportunity costs of management, insurance risks, depreciation of capital, necessary minimum payment to shareholders that can prevent them from withdrawing their capital from its current use.