Question

Normal profit situation is actually a situation when __________.

• A. a firm earns just enough to cover explicit and opportunity costs
• B. it is a zero profit situation
• C. both A and B
• D. none of the above

Answer 1

The correct option is C both A and B

Normal profit is earned when the firm's economic revenue and economic costs are equal, and thus zero economic profit is made. The economic costs consist of explicit and implicit costs incurred (such as opportunity costs). Firms in competitive markets will earn normal profits in the long run.