What We Should Know About Profit?

Profit is a central topic in the finance world and it has far-reaching implications in the human society, since the ancient times. Many of us support the existence of profit, but unfortunately, some are arguing against it due to specific reasons. However, those who are against profit could belief the immorality of excess profit. For profit to be considered as good, it should be obtained without excessive efforts at the expense of good things. But what is profit? In essential, when services are provided and goods are produced, there’s a need to compensate the costs spent. However, the selling price must be higher than the costs and this gives us profit.

We should know why and how do profit exist? Profit is essential for the economy and without it, the marketplace will cease to exist. Profit allows producers and sellers to sustain their activities and keep the economy flows naturally. There are different components of costs and they may include raw materials, labor, machinery and other equipments. Therefore, the production process is the transformation of raw material into finished products through machinery and equipment that are operated by labor. Producers and sellers can be a business entity or a single person.

On the other hand, people with needs won’t mind if they purchase products above the production costs. These people may include a person with torn dress and need to replace it by going to the nearest store. People who are thirsty could also buy soft drinks, which are relatively expensive, considering the relatively affordable ingredients. There are different components of costs. Fixed costs are essentially incurred, whether or not the producer is creating services or producing goods. Fixed costs are associated with the costs of running equipments, operating buildings and hiring permanent workers.

Variable costs usually vary according to the rate of production and they can be associated with raw materials, transportation and hiring contract employees. Overhead costs aren’t attributed directly to the production of specific units. These costs are usually lumped together; they may include administrative costs, electricity and water. Marginal costs are often applied to the production of additional units. In this case, total costs are the total of variable, fixed, marginal and overhead costs. At this point, we can determine more accurately that profit is equal to revenue subtracted by total costs.

On big problem s that some businesses don’t behave responsibly and this causes a number of social problems. People and companies should carry their objectives properly and make suitable profit within an agreed justifiable limit. However, pure competition in the marketplace could cause a number of challenges. The Internet offers easy entry for many individuals and this increases the likelihood of wrongdoings. Many companies also dominate the market to gain sizable profits and in this case, the business has the ability to set prices. Profit isn’t a necessary evil, but it is important for businesses to operate properly in a healthy way. It is hard not to see greed in the marketplace as something immoral.