Question

What is meant by abnormal (super-normal) profit?

Answer 1

Abnormal profit, also called supernormal profit or pure profit, is the profit earned by a firm over and above normal profit. It occurs when a firm’s total revenue exceeds total cost, including normal profits, which are considered a part of the cost of production in economics.

• Normal profit is the minimum return needed to keep a firm in the industry, covering opportunity costs and acting as a risk premium.
• Abnormal profit arises when a firm earns more than this minimum, meaning the difference between total revenue (TR) and total cost (TC) is greater than zero, even after accounting for normal profit.
• It is a sign of efficiency, innovation, or market power and usually exists in the short run under imperfect competition.

If a firm’s total cost (including normal profit) is ₹ 1,00,000 and total revenue is ₹ 130,000, the abnormal profit is ₹ 30,000.