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The main reason firms exist. In economic theory, profit is the reward for risk taken by enterprise, the fourth of the factors of production – what is left after all other costs, including rent, wages and interest. Put simply, profit is a firm’s total revenue minus total cost. Economists distinguish between normal profit and excess profit. Normal profit is the opportunity cost of the entrepreneur, the amount of profit just sufficient to keep the firm in business. If profit is any lower than that, then enterprise would be better off engaged in some alternative economic activity. Excess profit, also known as super-normal profit, is profit above normal profit and is usually evidence that the firm enjoys some market power that allows it to be more profitable than it would be in a market with perfect competition.
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