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 a normal profit. An enterprise that does not make normal profits is not going to continue in business.

Normal profits are, therefore, part and parcel of the enterprise’s total costs. It may be beneficial to think of them as an opportunity cost for entrepreneurship.

The profit that an enterprise earns over and above the normal profit is known as the super-normal profit. In the long run, an enterprise does not manufacture goods if it earns anything less than the normal profit.

In the short run, however, it may manufacture goods even if the profit is less than this degree.

The point on the supply curve at which an enterprise earns only normal profit is known as 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 the short-run, the short run average curve (SAC) curve is, therefore, the break-even point of an enterprise.

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