Definition
- Normal profit
- Normal profit is the minimum profit an owner must expect to earn to keep their resources in the business, and economists count it as a cost.
- Not to be confused with: Supernormal profit
- Supernormal profit is any profit above normal profit, where total revenue exceeds total cost including both explicit and implicit costs.
Example
Can you work out what revenue would give Sam exactly normal profit?
Keep Sam's costs the same. Revenue of £160,000 gives an accounting profit of £40,000 and an economic profit of zero: exactly normal profit, since the café pays her what her old job did. Revenue of £170,000 gives an economic profit of £10,000, which is supernormal.
Test yourself
What is the difference between normal profit and supernormal profit?
Normal profit is the minimum that keeps the owner in the business and is counted as a cost; supernormal profit is anything above it.