Revenue minus costs. That is the simple definition of profit, and it is the bottom line for every business. Profit is not just a reward for the owner. It is a signal that resources are being used well. Firms that earn profits attract investment and expand. Firms that lose money shrink or disappear. This process, called creative destruction by Joseph Schumpeter, drives economic progress.

Accountants and economists measure profit differently. Accounting profit subtracts explicit costs: wages, rent, materials. Economic profit also subtracts implicit costs, like the salary an owner could have earned elsewhere or the return that could have been earned on invested capital. A business may show an accounting profit while earning zero economic profit, meaning the owner would be better off doing something else.

Not all profit is equal. Monopoly profit comes from market power and can persist. Competitive profit tends to be temporary, as rivals enter and drive prices down. Entrepreneurial profit rewards innovation and risk-taking. The word itself carries moral weight in some debates. Critics call it exploitation. Defenders call it the incentive that makes everything else work. Both sides have a point, and the argument is as old as economics itself.

Profit concepts

• Accounting profit: revenue minus explicit costs
• Economic profit: revenue minus all costs, explicit and implicit
• Normal profit: zero economic profit, the minimum to stay in business
• Monopoly profit: above-normal profit from market power