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.