With reference to "Super-normal profit", consider the following statements: 1. It refers to the profit earned which is exactly equal to the normal profit. 2. In the short run, it is possible for firms to earn super-normal profits. 3. It discourages new firms from entering the market. Which of the statements given above is/are correct?

The correct option is 2 only. Explanation In microeconomics, profit is classified into normal profit and super-normal (or abnormal) profit based on the relationship between Total Revenue (TR) and Total Cost (TC), where Total Cost includes both explicit costs and implicit opportunity costs. Normal profit is the minimum earning required to keep a firm in its current business (where TR = TC). Super-normal profit occurs when a firm earns more than what is necessary to cover all costs (where TR > TC). - Statement 1 is Incorrect: Super-normal profit refers to the surplus profit earned over and above the normal profit. If a firm earns profit exactly equal to the normal profit, its economic profit is zero. Super-normal profit implies a positive economic profit. - Statement 2 is Correct: In the short run, firms in various market structures (such as perfect competition, monopoly, or monopolistic competition) can earn super-normal profits. This occurs if the demand is sufficiently high such that the Average Revenue (Price) exceeds the Average Cost of production. In the short run, new firms cannot immediately enter the market to compete away these profits. - Statement 3 is Incorrect: The existence of super-normal profits acts as an incentive or signal for new firms to enter the market. In a perfectly competitive market, the entry of new firms increases supply, drives down prices, and eventually eliminates super-normal profits in the long run. Key Takeaway: Super-normal profit is any profit above the opportunity cost of production (Economic Profit > 0). It serves as a market signal that attracts new entrants, whereas normal profit (Economic Profit = 0) is the equilibrium condition for firms in a perfectly competitive market in the long run.

With reference to "Super-normal profit",… - NCERT Class 12 Economics MCQ

NCERT Class 12 Economics — Chapter 2: Market Equilibrium

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With reference to "Super-normal profit", consider the following statements:

It refers to the profit earned which is exactly equal to the normal profit.
In the short run, it is possible for firms to earn super-normal profits.
It discourages new firms from entering the market.

Which of the statements given above is/are correct?

NCERT textbook question

From NCERT Introductory Microeconomics · Page 81

Options

A1, 2 and 3
B1 only
C1 and 3 only
D2 only

Did you get this right?

Solution

The correct option is 2 only.

Explanation

In microeconomics, profit is classified into normal profit and super-normal (or abnormal) profit based on the relationship between Total Revenue (TR) and Total Cost (TC), where Total Cost includes both explicit costs and implicit opportunity costs. Normal profit is the minimum earning required to keep a firm in its current business (where TR = TC). Super-normal profit occurs when a firm earns more than what is necessary to cover all costs (where TR > TC).

Statement 1 is Incorrect: Super-normal profit refers to the surplus profit earned over and above the normal profit. If a firm earns profit exactly equal to the normal profit, its economic profit is zero. Super-normal profit implies a positive economic profit.
Statement 2 is Correct: In the short run, firms in various market structures (such as perfect competition, monopoly, or monopolistic competition) can earn super-normal profits. This occurs if the demand is sufficiently high such that the Average Revenue (Price) exceeds the Average Cost of production. In the short run, new firms cannot immediately enter the market to compete away these profits.
Statement 3 is Incorrect: The existence of super-normal profits acts as an incentive or signal for new firms to enter the market. In a perfectly competitive market, the entry of new firms increases supply, drives down prices, and eventually eliminates super-normal profits in the long run.

Key Takeaway:
Super-normal profit is any profit above the opportunity cost of production (Economic Profit > 0). It serves as a market signal that attracts new entrants, whereas normal profit (Economic Profit = 0) is the equilibrium condition for firms in a perfectly competitive market in the long run.

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