What is Normal profit?

Normal profit in economics is a simple concept.
  1. When a firm's total revenue is equal to its total costs.
  2. Within costs there are implicit costs e.g. the opportunity costs of the firm using the resources elsewhere.

In the two diagrams below to show the normal profit we are making a few assumptions.
  1. The firm is profit maximising - Profit maxisation is where MR=MC.
  2. The implicit costs are included within the MC and AC curves.

Both diagrams show normal profits as at the proft maximising output AR = AC. These points are highlighted on each diagram in green.

Normal Profit in Perfect and Imperfect Markets

the diagram shows the normal profitws being made by a firm in perfect competition. the diagram shows the profit maximisation output where the marginal cost intersects the marginal revenue curve. at this point the average costs are equal to the marginal costs. the marginal revenue and averaqge revenue curve are combined into one horizontal curve.
Normal profit in perfect competition
the diagram shows the normal profitws being made by a firm in imperfect competition. the diagram shows the profit maximisation output where the marginal cost intersects the marginal revenue curve. at this point the average costs are equal to the marginal costs. the marginal revenue curve slopes downwards and averaqge revenue curve slopes downwards above marginal revenue.
Normal profit in imperfect competition