Explain the difference between economic and normal profits. What will

Explain the difference between economic and normal profits.

What will be an ideal response?

ANSWER

Normal profit is the amount of profit necessary to insure that a firm continues to operate in the long run, and it is based on the profit that could be earned in its next best alternative activity. It is equal to the sum of its accounting cost and opportunity cost. Economic profit is the amount of profit above normal profit: profit in excess of what could be earned in its next best alternative activity.