Question

What do you understand by superprofit?

• A. Total profit $\div$ No. of years
• B. Average profit $-$ Normal profit
• C. Weighted profit $\times$ No. of years purchase
• D. None of these

Hint:

Superprofit highlights the advantage of a firm over normal expectations; it is always “excess profit” = Average profit $-$ Normal profit.

Answer 1

The Correct Option is B

Step 1: Concept of superprofit.
Superprofit represents the “extra” profit earned by a firm over and above the normal expected profit. It shows the competitive advantage of a business.
Step 2: Formula for superprofit.
\[ \text{Superprofit} = \text{Average Profit} - \text{Normal Profit} \] Here, - Average profit = Average of actual past profits.
- Normal profit = Capital employed $\times$ Normal Rate of Return (NRR).
Step 3: Eliminate incorrect options.
- Option (A) Total profit $\div$ No. of years $\Rightarrow$ This gives average profit, not superprofit.
- Option (C) Weighted profit $\times$ No. of years $\Rightarrow$ This is related to goodwill valuation, not superprofit.
- Option (D) None of these $\Rightarrow$ Incorrect because option (B) is correct.
Step 4: Conclude.
Thus, superprofit is simply the difference between average profit and normal profit.
Final Answer: \[ \boxed{\text{Average Profit $-$ Normal Profit}} \]