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Normal Profit - Explained

What is Normal Profit?

Written by Jason Gordon

Updated at March 26th, 2023

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What is Normal Profit?

Normal profit, also known as "zero economic profit", is the situation where a firm's total revenue equals the combination of explicit and implicit costs. 


Total Revenue = Explicit + Implicit Costs


Normal profit is unique from economic profit and accounting profit, which do not take implicit costs into consideration. 

Implicit costs are opportunity costs - that is, the value of alternative options that are forgone when pursuing a business opportunity. 

A firm that is operating efficiently and could not put its resources to better use elsewhere achieves normal profit. 

Back to:ECONOMIC ANALYSIS & MONETARY POLICY

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normal profits profit margin

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