There are three main types of business organizations: sole proprietorship, partnership and corporation. A sole proprietorship is a business owned by one person. The advantages are: the owner keeps all the profits and makes all the decisions.

Of that number, what percent were Sole proprietorships: 68.93% Partnerships: 11.18% Corporations: 19.89% F. Between 1970 and 2008, by how many businesses did each business type increase? Sole proprietorships: 16,844 Partnerships: 2,210 Corporations: 4,182 G.

While there are significantly more pass-through entities than C corporations, corporations still earn the largest portion of total gross receipts. In 2011, corporations earned 62 percent of the $30.9 trillion in total business receipts.

There are three common types of businesses—sole proprietorship, partnership, and corporation—and each comes with its own set of advantages and disadvantages.

Types of Profit

• Gross Profit. Gross profit is the value that remains after the cost of sales, or cost of goods sold (COGS), has been deducted from sales revenue.
• Operating Profit. Operating profit, also called Earnings Before Interest and Taxes (EBIT)
• Net Profit.

In economics, abnormal profit, also called excess profit, supernormal profit or pure profit, is “profit of a firm over and above what provides its owners with a normal (market equilibrium) return to capital.” Normal profit (return) in turn is defined as opportunity cost of the owner’s resources.

Revenue is the total amount of income generated by the sale of goods or services related to the company’s primary operations. Profit is the amount of income that remains after accounting for all expenses, debts, additional income streams, and operating costs.

Economic and Normal Profit Economic profit is the profit an entity achieves after accounting for both explicit and implicit costs. Normal profit occurs when economic profit is zero or alternatively when revenues equal explicit and implicit costs.

If profit is negative, there is incentive for firms to exit the market. If profit is zero, there is no incentive to enter or exit. For a competitive market, economic profit can be positive in the short run. In the long run, economic profit must be zero, which is also known as normal profit.

When measuring the normal profit of a company, we consider the opportunity cost of using the resources elsewhere. If a company reports a normal profit, it means that the compensation it receives for remaining in business is higher than the opportunity cost that it loses by using the resources to produce goods.

Normal profit is a situation where a firm makes sufficient revenue to cover its total costs and remain competitive in an industry. In measuring normal profit, we include the opportunity cost of working elsewhere. When a firm makes normal profit we say the economic profit is zero.

The normal profit formula (or economic profit formula) is: Revenue – Explicit Expenses – Implicit Expenses = Normal Profit. If the amount earned is greater than a normal profit, it is called an economic profit; if less, then it is called an economic loss.

Economic Profit = Revenues – Explicit costs – Implicit costs.

The definition of normal profit occurs when AR=ATC (average revenue = average total cost) Supernormal profit is defined as extra profit above that level of normal profit. Supernormal profit is also known as abnormal profit.

Super profit is the method in which an excess of average profits over normal profits. Under this method, goodwill is estimated on the basis of super-profits.

It can be expressed in formula as follows: Normal Profit = Capital Employed x (Normal Rate of Return/100) Super Profit = Average estimated profit – Normal Profit.

Profit maximisation occurs at Q, given that the gap between total revenue (TR) and total costs (TC) is at its greatest. Not all firms are profit maximisers.

The profit of a company or investment after adjusting for inflation. It is calculated simply by subtracting the inflation rate from the gross profit margin. For example, if a company’s profit margin is 7% and the inflation rate is 4%, the real profit is 3%.

Break-even point is that point of output level of the firm where firms total revenues are equal to total costs (TR = TC). Normal profit is included in the cost of production. Thus, at break-even point a firm gets only normal profit or zero economic profit.

Classical economic theory suggests firms will seek to maximise profits. The benefits of maximising profit include: Profit can be used to pay higher wages to owners and workers. Profit enables the firm to build up savings, which could help the firm survive an economic downturn.

Profit maximization is an inappropriate goal because it’s short term in nature and focus more on what earnings are generated rather than value maximization which comply to shareholders wealth maximization. In the short term, profit maximization may pursue such action which might be proved harmful in the long run.

12 Tips to Maximize Profits in Business

1. Assess and Reduce Operating Costs.
2. Adjust Pricing/Cost of Goods Sold (COGS)
3. Review Your Product Portfolio and Pricing.
4. Up-sell, Cross-sell, Resell.
5. Increase Customer Lifetime Value.
6. Lower Your Overhead.
7. Refine Demand Forecasts.
8. Sell Off Old Inventory.

Revenue maximisation is when firms aim to make their revenue as high as possible so produce MR=0. Profit maximising is when they aim to make their profit as high as possible, so produce where MC=MR. For the pharmaceutical industry, profit maximisation is the most realistic objective.

Maximizing profits by minimizing service and integrity can lead to business problems that eventually sink a business, as shortcuts and bad PR cause customers and employees to leave.

Disadvantages of Profit Maximization/Attack on Profit Maximization:

• Ambiguity in the Concept of Profit:
• Multiplicity of Interests in a Joint Stock Company:
• No Compulsion of Competition for a Monopolist:
• Separation of Ownership from Control:
• The Principle of Decreasing Power:
• Stress on Efficiency, not Profit:

Baumol, in his book ‘Business behaviour, Value and Growth’ has propounded a theory of Sales Maximisation. According to this theory, once profits reach acceptable levels, the goal of the firms become maximisation of sales revenue rather than maximisation of profits.

By sales maximisation, Baumol means maximisation of total revenue. It does not imply the sale of large quantities of output, but refers to the increase in money sales (in rupee, dollar, etc.). Sales can increase up to the point of profit maximization where the marginal cost equals marginal revenue.

In economics, profit maximization is the short run or long run process by which a firm may determine the price, input and output levels that lead to the highest profit. The firm produce extra output because the revenue of gaining is more than the cost to pay. So, total profit will increase.