Super-normal profit
Also called: Supernormal profit, Abnormal profit, Economic profit, Excess profit · Topic: Theory of the Firm, Supply and Perfect Competition · NCERT: Class 12, Ch 4 "The Theory of the Firm under Perfect Competition"; Class 12, Ch 5 "Market Equilibrium"
Meaning
Super-normal profit is profit above normal profit. Normal profit is the minimum return needed to keep the owner in the business. Because economists count normal profit as part of total cost, super-normal profit means positive economic profit (TR − TC > 0). Under free entry, it attracts new firms. Market supply then rises and price falls until only normal profit is left in the long run.
Example
Under the licence raj, industrial licensing and capacity caps kept new firms out. The protected firms could keep earning super-normal profit. After the 1991 delicensing, easier entry began to compete such profits away.
Don't confuse with
- Normal profit: this is the minimum return that keeps a firm in business. It is part of cost, and a firm earning only normal profit has zero economic profit.