Normal+Profit

Normal Profit

Normal profits can be a deceiving name, because in fact, they are opportunity costs. By definition normal profits are the earnings required to keep a business running. This includes costs such as the cost of labor. If normal profits were not being earned, the business would close and workers would go do something else. This is why the normal profit is also considered the opportunity cost. If you made a Tshirt business that was not making normal profits, you would go play for the NBA, or whatever your other option for work was before you created a business.

In addition, a company is making a normal profit when their revenue is equal to their costs. Normal profit is probably one of the greatest things a company could have. When a company is at normal profit, they know that they are doing good in their market and they are going to continue in that market and make more money.

media type="youtube" key="JNaT5Vgv1Yc" height="344" width="425" This video is of an economics teacher explaining the facts about revenue, cost, and profit.

Graph The orange area represents the normal profit or implicit cost of this business.

BONUS QUESTION: Situation: A company is selling tshirts and they notice that they aren't selling as much as they should so they become engineers Is this a problem of Normal Profit? Why or Why not?

Answer: Yes, because they are not making normal profit so they stop and become engineers.

Links [|Economic Profit vs Normal Profit] [|Cost and Profit] [|EconLinks Glossary]