Normal, Subnormal, and Supernormal Profit

What is normal profit?

• Profit that is just enough to keep a firm operating in the industry

• Profit that exceeds opportunity cost

• Profit that results in bankruptcy

• Profit made when costs are higher than revenue

How is normal profit calculated?

• Total Revenue - Explicit Costs

• Total Revenue - Total Costs (Including Implicit Costs)

• Total Cost - Marginal Cost

• Fixed Costs - Variable Costs

When does a firm earn normal profit?

• When total revenue equals total costs (including opportunity costs)

• When total revenue is greater than total cost

• When total cost exceeds total revenue

• When marginal revenue is at its maximum

What is another term for normal profit?

• Economic Profit

• Zero Economic Profit

• Accounting Profit

• Supernormal Profit

What is supernormal profit?

• Profit above the minimum needed to keep a firm in business

• Profit that is exactly equal to opportunity cost

• Profit that results in losses for firms

• Profit that leads to firm closure

What does supernormal profit indicate in a market?

• The firm is struggling to cover its costs

• The firm is earning above-normal returns, attracting competition

• The firm is in perfect competition

• The firm is operating at breakeven

Which type of market structure is most likely to allow supernormal profits in the long run?

• Perfect competition

• Monopoly

• Monopolistic competition

• Oligopoly

In perfect competition, firms make supernormal profit in the:

• Short run only

• Long run only

• Both short run and long run

• Never

What happens to supernormal profit in the long run in perfect competition?

• It continues to increase indefinitely

• It is eliminated as new firms enter the market

• It leads to monopolies forming

• It remains the same over time

What is subnormal profit?

• Profit that is lower than normal profit and leads to firms exiting the market

• Profit above total costs

• Profit that attracts more firms into the market

• Profit that results in economic efficiency