75. Normal profit is

A. determined by subtracting implicit costs from total revenue.
B. determined by subtracting explicit costs from total revenue.
C. the return to the entrepreneur when economic profits are zero.
D. the average profitability of an industry over the preceding 10 years.

Question

75. Normal profit is

A. determined by subtracting implicit costs from total revenue.
B. determined by subtracting explicit costs from total revenue.
C. the return to the entrepreneur when economic profits are zero.
D.  the average profitability of an industry over the preceding 10 years.

BlackTom AI · Accepted Answer

Question restatement: Normal profit is

A. determined by subtracting implicit costs from total revenue.
B. determined by subtracting explicit costs from total revenue.
C. the return to the entrepreneur when economic profits are zero.
D. the average profitability of an industry over the preceding 10 years.

Option A: Subtracting implicit costs from total revenue would yield something akin to accounting profit plus the opportunity costs? In fact, accounting profit equals total revenue minus explicit costs, while implicit costs are the opportunity costs of the entrepreneur’s own resources and are not deducted when calculating accounting profit. Therefore, this option misidentifies the measure and mixes concepts, making it incorrect.

Option B: Subtracting explicit costs from total revenue gives accounting profit, not normal profit. Normal profit incorporates both explicit and implicit costs as the opportunity costs of entrepreneurship, so this option is not correct.

Option C: Framing normal profit as the return to the entrepreneur when economic profits are zero aligns with standard economic theory. Normal profit represents the minimum entrepreneurial return required to keep resources in their current use, accounting for the opportunity costs; when total revenue minus total costs (explicit plus implicit) equals zero economic profit, the entrepreneur earns normal profit. This description captures the essence of normal profit.

Option D: Describing normal profit as the average profitability of an industry over the preceding 10 years confuses a time-based industry measure with the concept of normal profit. Normal profit is an economic concept tied to opportunity costs and the entrepreneur’s return, not an industry-wide historical average. This makes it incorrect.

ECNM1116.32924.202530 Microeconomics Final; Spring 2025, 100 Multiple Choice Questions

75. Normal profit is A. determined by subtracting implicit costs from total revenue. B. determined by subtracting explicit costs from total revenue. C. the return to the entrepreneur when economic profits are zero. D. the average profitability of an industry over the preceding 10 years.

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