Question

1. What is Normal Profit?

A. Normal Profit is equal to the “Reasonable Rate of Return” for the market.

B. Normal Profit is equal to the highest “opportunity cost” available to the producer even if that profit level is above the “Reasonable Rate of Return” for the market

C. Economic Profit is Normal Profit minus what profit would have been at the highest opportunity cost. Economic Profit can be above, below or equal to Normal Profit

D. Both A and C

Answer 1

D. Both A and C

• Normal profit is often viewed in conjunction with economic profit.
• Normal profit is a condition that exists when a company or industry's economic profit is equal to zero.
• Normal and economic profits differ from accounting profit, which does not take into consideration implicit costs.
• A company may report high accounting profit but still be in a state of normal profit if the opportunity costs of maintaining business operations are high.
• In macroeconomics, an industry is expected to experience normal profit during times of perfect competition