Question
Differentiate between normal profit and supernormal profit under a Perfectly Competitive market.
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Answer
Normal Profit : It is the minimum level of profit required to keep a firm in operation in the long run. It occurs when Total Revenue (TR) is equal to Total Cost (TC) or Price (P) equals Average Cost (AC). In economics, normal profit is considered a part of implicit costs.
Supernormal Profit : It is any profit earned over and above the normal profit. It occurs when Total Revenue (TR) is greater than Total Cost (TC) or Price (P) is greater than Average Cost ( AC). This usually happens in the short run under perfect competition.
Supernormal Profit : It is any profit earned over and above the normal profit. It occurs when Total Revenue (TR) is greater than Total Cost (TC) or Price (P) is greater than Average Cost ( AC). This usually happens in the short run under perfect competition.
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