What is considered supernormal profit?

Supernormal profit, also known as economic profit, is defined as the profit that exceeds the normal profit level. Normal profit is the minimum level of profit needed for a company to remain viable in a competitive market, covering both explicit and implicit costs.

When a firm earns supernormal profit, it indicates that its total revenue is greater than both its total costs and its opportunity costs, allowing it to generate excess returns beyond what is necessary to attract resources to that business. This situation can arise in cases where firms have a competitive advantage, such as unique products, brand loyalty, or cost advantages.

In contrast, options that refer to total costs, losses, or average costs would denote situations where the firm does not achieve the excess returns that characterize supernormal profits. Understanding the distinction between supernormal profit and other profit levels can help firms determine their competitive position in the market.