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    Why is normal profit a cost of production?

    I know that it covers the opportunity cost of production but why is it considered a COST OF production?


    Thanks.
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    Because it is the reward to the factor of production Enterprise. Without enterprise the business would not exist, so it is necessary to reward enterprise with profit and the reward is called normal profit.
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    (Original post by mapotts53)
    Because it is the reward to the factor of production Enterprise. Without enterprise the business would not exist, so it is necessary to reward enterprise with profit and the reward is called normal profit.
    Yes I understand that it is a REWARD, but why do books also say that it is a cost of production? Thanks.
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    (Original post by BrownieLover)
    Yes I understand that it is a REWARD, but why do books also say that it is a cost of production? Thanks.
    Can you indicate your source? Quote the paragraph? Examination board?
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    It is a cost of production because all of the rewards to factors are costs of production. Wages to labour, rent to land, interest to capital and profit to enterprise - all are costs of production.
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    (Original post by mapotts53)
    It is a cost of production because all of the rewards to factors are costs of production. Wages to labour, rent to land, interest to capital and profit to enterprise - all are costs of production.
    Thanks, thats very helpful. So would even abnormal profit be considered a cost?
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    No, abnormal profit is profit which is in excess of the reward needed to keep enterprise in its current use so it is not a cost of production.
 
 
 
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