Ravi K and super normal profits

Monday, 9 February 2015 00:00 - - {{hitsCtrl.values.hits}}

In his

udget speech, the Minister of Finance referred to firms which have made “super normal profits.” There seems to be a lack of understanding of the phrase “super normal profits”. They are any profits above that required to stay on in business, with the opportunity cost of capital also covered. There is no connotation of ill-gotten profits or even excessive profits implied by super normal profits. Most firms make super normal profits. “Super” does not mean very large, unusual, or excessive, and “normal” does not mean average, or the norm. The phrase “super normal profit” was used in a bygone era. The correct phrase to use is “economic profit”. Like elsewhere in the world, most Sri Lankan firms make economic profit. These profits are not necessarily (in most cases) excessive or ill-gotten. Economicus