Positive economic profit is the same as?

Question

BlackTom AI · Accepted Answer

Positive economic profit equals supernormal profit because it measures returns above the normal (opportunity) cost of all resources, including implicit costs.

1) Relevant concepts
- Accounting profit = Total Revenue − Explicit costs (cash expenses).
- Economic profit = Total Revenue − (Explicit costs + Implicit costs) = Accounting profit − Implicit costs.
- Normal profit = the return necessary to keep resources in their current use (implicit costs). Supernormal (or super‑normal) profit = any positive economic profit (profit above normal profit).

2) Step-by-step reasoning
- Start from definitions: Economic profit is revenue minus both explicit and implicit costs.
- If economic profit > 0, the firm earns more than the returns that would be earned in the next best alternative; this excess is called supernormal profit.
- Therefore positive economic profit is by definition the same as supernormal profit.

3) Example showing intermediate steps
- Suppose Total Revenue = 100, Explicit costs = 70, Implicit costs = 10.
- Accounting profit = 100 − 70 = 30.
- Economic profit = 100 − (70 + 10) = 20, which is positive.
- That positive economic profit (20) is supernormal profit — returns above the normal/implicit cost.

4) Why the correct answer is correct
- The phrase “super normal profit” is the standard label for profits above the normal (implicit) return. Positive economic profit = profit above normal returns, so the two terms describe the same situation.

5) Why the other options are incorrect
- a. “Super‑normal accounting profit”: Accounting profit ignores implicit costs; you can have a super‑normal accounting profit but zero economic profit if implicit costs absorb the excess. Thus it’s not the precise synonym.
- b. “An accounting loss”: An accounting loss is negative accounting profit; it cannot equal positive economic profit.
- c. “Zero economic profit”: Zero economic profit means normal profit only, not positive profit above normal.

Conclusion: Positive economic profit is the same as super normal profit, so the correct answer is d.

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