What is normal profit in economic terms?

Normal profit is defined as the profit necessary to keep a firm’s resources in their current use. In economic terms, it represents the opportunity cost of employing the resources in a particular way rather than utilizing them elsewhere. When a firm earns normal profit, it is covering all its explicit and implicit costs, allowing the business to continue operating without incentivizing a shift of resources to other alternatives.

This concept is integral to understanding how firms operate within different market structures. If a firm earns precisely normal profit, it indicates that the firm is breaking even, and no economic loss or gain is occurring. Therefore, resources remain in the firm because it is just profitable enough to cover the costs associated with utilizing those resources, ensuring that the firm can maintain its operations in the industry without prompting a reallocation of its resources to potentially more lucrative alternatives.