The Normal Profit and Break Even Point

The minimum degree of profit that is required to keep an enterprise in the existing trade is defined as normal profit. An enterprise that does not make normal profits is not going to continue in business. Normal profits are hence a part and parcel of the enterprise’s total costs. It may be beneficial to think of them as an opportunity cost for entrepreneurship. Profit that an enterprise earns over and above the normal profit is called the super normal profit. In the long run, an enterprise does not manufacture if it earns anything less than the normal profit. In the short run, however, it may manufacture even if the profit is less than this degree.

The point on the supply curve at which an enterprise earns only normal profit is called the break even point of the enterprise. The point of minimum average cost at which the supply curve cuts the Long Run Average Cost Curve (LRAC) – in short run, Short Run Average Curve (SAC) curve is therefore the break-even point of an enterprise.

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