Definition of Normal profit:
Normal profit is often viewed in conjunction with economic profit. Normal profit and economic profit are economic considerations while accounting profit refers to the profit a company reports on its financial statements each period. Normal profit and economic profit can be metrics an entity may choose to consider when it faces substantial implicit costs.
Normal profit is a profit metric that takes into consideration both explicit and implicit costs. It may be viewed in conjunction with economic profit. Normal profit occurs when the difference between a company’s total revenue and combined explicit and implicit costs are equal to zero.
Minimum profit necessary to attract and retain suppliers in a perfectly competitive market (see perfect competition). Only normal profit could be earned in such markets because, if profit was abnormally high, more competitors would appear and drive prices and profit down. If profit was abnormally low, firms would leave the market and the remaining ones would drive the prices and profit up. Markets where suppliers are making normal profits will neither expand nor shrink and will, therefore, be in a state of long-term equilibrium. Normal profit typically equals opportunity cost.
How to use Normal profit in a sentence?
- 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.
- Normal profit is a condition that exists when a company or industry's economic profit is equal to zero.
- The normal profit was generated quickly so we were able to make new business relationships with many different and great suppliers.
- Normal and economic profits differ from accounting profit, which does not take into consideration implicit costs.
- Normal profit is often viewed in conjunction with economic profit.
- I wondered what our normal profit rate would be if I went ahead and allowed the new items on the floor.
- You need to make sure that you are always at least achieving the normal profit for all the time and effort you put in.
- In macroeconomics, an industry is expected to experience normal profit during times of perfect competition.
Meaning of Normal profit & Normal profit Definition