Normal Profit

The implicit cost faced by the owner of a business firm. A business owner will wish to cover all of his explicit costs (wages, rents and interest payment), but also earn a “normal” level of profit in order to remain in a market in the long run. If a normal level of profit is not enjoyed by the entrepreneur, he will shut down his business and re-allocated his resources into another industry in which a higher level of profit can be earned. Normal profit is a cost, because if it is not earned, a firm will eventually shut down.

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