What is a "normal profit"?

Question

I have done some research into the meaning of 'normal profits' and the notion of it is still very vague to me. So far, I understand 'normal profits' to mean 'a profit made by a firm which breaks even with the total cost of the firm.' At break even, TC=TR; and no profit is made. So does that mean that normal profit is actually no profit?

I read somewhere that there is a relationship between normal profits and opportunity cost, or rather, opportunity cost is needed to define the meaning of 'normal profits'.

If anyone can clarify this for me, i would appreciate it very much. Thanks!

Answer 1

Normal profit happens when the Economic profit (not accounting profit) is zero (TR=TC).

What you have to pay attention to is that the TC is the total of both explicit and implicit cost. (TC=explicit + implicit cost). Implicit costs are costs when it foregoes an alternative action but doesn't need to make a physical payment (or as some refers as opportunity cost)

You asked about whether normal profit=no profit. It all depends on whether we're talking about accounting profit or economic profit.

Accounting practices doesn't recognizes implicit cost, hence accounting profit equations becomes:

Accounting Profit = TR - Explicit Cost
Economic Profit = TR - TC = TR - (Explicit Cost+Implicit Cost)

Since in practice Implicit Cost can't be zero, when normal profit happens (economic profit=zero), there should be still some accounting profit.

Answer 2

Normal Profit Is

Answer 3

Nobody is normal. We are all at the very least a little crazy. There are over course the norms of society which are laws and rules established by man, but even a so-called normal person frequently breaks those laws and rules behind closed doors. Plus, the norms of society are constantly changing and evolving. What was normal 40 years ago could be seen as abnormal today. I don't know why we have to put all these labels on each other. Why can't we just live and enjoy life for all that it has to offer?

Answer 4

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RE:
What is a "normal profit"?
I have done some research into the meaning of 'normal profits' and the notion of it is still very vague to me. So far, I understand 'normal profits' to mean 'a profit made by a firm which breaks even with the total cost of the firm.' At break even, TC=TR; and no profit is...

Answer 5

Normal profit is the amount of acounting profit that is enough for existing firms to stay in business, but not enough to attract new competitors. In economics, unlike accounting, normal profit is included in costs. Finance takes this convention even further by developing the concept of cost of capital.

Answer 6

Here's an example. I quit my job as a computer programmer in which I am earning $50,000 per year, to start my own software company. I have my accountant keep up with revenues and expenses, and she tells me that I had a profit of $60,000 in my first year.

I had $50,000 in opportunity costs due to the foregone wage. The accountant ignored those because accounting principles won't let her count that. A normal profit for me would be the same amount as my opportunity costs I had. Thus a normal profit for me would have been $50,000.

I had accounting profit of $60,000. Because Accounting profit ignores opportunity costs, and economic profit considers them, my economic profit is $10,000. If potential competitors see that I have a positive economic profit, they will be enticed to enter my market.

Answer 7

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What might be called abnormal or normal is totally dependent upon ones own inherent comfort level. That which is abnormal or normal, cannot truly be "considered". That which is abnormal or normal, can truly only be "witnessed and observed". ~~~~~ Abnormal is, as abnormal does. Normal is, as normal does. ~~~~~ That which is found to be neither abnormal or normal, would be found to be "Authentic". One might even call someone or something "Authentic", "The Real Deal". Have you ever witnessed or observed, someone or something "Authentic" or "The Real Deal"? Just curious..... Peace be always with you. in sha'Allah al-hamdu lillah Salaams,