normal profit

It sounds like a riddle: a firm earning 'normal profit' is, in the economist's special sense, making zero profit — yet it is doing perfectly fine and has no reason to quit. Normal profit is the minimum reward the owner must get to make staying in this business worth their while rather than packing up and doing the next-best thing with their money and time.

Here is how it fits together. Economic profit = revenue minus all costs, including the owner's opportunity costs (the salary and investment return they gave up). Normal profit is the level of return where economic profit equals exactly zero. At that point the firm's revenue covers every explicit cost and also exactly matches what the owner could have earned elsewhere — no better, no worse. So normal profit is not a windfall; it is treated as a cost of doing business, the price of keeping the entrepreneur in the game. Anything above it is economic profit (also called supernormal or abnormal profit); anything below it means the owner would do better elsewhere and should consider leaving. If a shop owner could earn 70,000 elsewhere and the shop returns exactly that after all other costs, the shop earns normal profit and zero economic profit.

Normal profit is the resting point that competition pushes industries toward in the long run. When firms in a market earn more than normal profit, the extra (economic profit) lures new entrants; their competition drives prices and profits down until only normal profit remains. When firms earn less than normal profit, some leave, supply falls, prices rise, and the survivors are restored to normal profit. So in the long run, under free entry and exit, firms tend to earn exactly normal profit — enough to keep going, but no more. It is the quiet equilibrium behind the idea that competitive markets squeeze out easy money.