Incremental profit is the

profit Profit may refer to: Business and law * Profit (accounting), the difference between the purchase price and the costs of bringing to market * Profit (economics), normal profit and economic profit * Profit (real property), a nonpossessory inter ...

gain or loss associated with a given

managerial Management (or managing) is the administration of organizations, whether businesses, nonprofit organizations, or a government bodies through business administration, nonprofit management, or the political science sub-field of public administra ...

decision. Total profit increases so long as incremental profit is positive. When incremental profit is negative, total profit declines. Similarly, incremental profit is positive (and total profit increases) if the incremental

revenue In accounting, revenue is the total amount of income generated by the sale of product (business), goods and services related to the primary operations of a business. Commercial revenue may also be referred to as sales or as turnover. Some compan ...

associated with a decision exceeds the incremental cost. The incremental concept is so intuitively obvious that it is easy to overlook both its significance in managerial decision making and the potential for difficulty in correctly applying it.
For this reason, the incremental concept is sometimes violated in practice. For example, a firm may refuse to sublet excess

warehouse A warehouse is a building for storing goods. Warehouses are used by manufacturers, importers, exporters, wholesalers, transport businesses, customs, etc. They are usually large plain buildings in industrial parks on the rural–urban fringe, out ...

space for $5000 per month because it figures its cost as $7500 per month -a price paid for a long-term lease on the facility. However, if the warehouse space represents excess capacity with no current value to the company, its historical cost of $7500 per month is irrelevant and should be disregarded. The firm would forego $5000 in profits by turning down the offer to sublet the excess warehouse space. Similarly, any firm that adds a standard allocated charge for fixed costs and overhead to the true incremental cost of production runs the risk of turning down profitable business.

References

{{Reflist Profit Management