Profit position of the firm

After you have worked through this section of the learning unit, you should be able to:

  • distinguish between normal profit, economic profit and a loss

Normal profit

Normal profit is the best return that the firm's self-owned, self-employed resources could earn elsewhere. It can be regarded as the minimum payment required by the owner of the firm to stay in the particular business. Normal profit includes the cost of the owner's time and capital. Thus, if an economist talks about the cost of doing business, he or she would include the normal profits that must be paid to the owners to keep them in the particular business.