As per the NCERT glossary, normal profit is the profit level that is just enough to cover:
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → the explicit costs and the opportunity costs of the firm
Normal profit just covers both kinds of cost: the costs the firm pays out (explicit costs) and the gain it gives up by not using its resources elsewhere (opportunity costs). Options (2) and (3) each leave one of them out.
Covering only the total variable cost is the short run shut down situation, not normal profit.
NCERT (2026-27): Glossary: “Normal profit – The profit level that is just enough to cover the explicit costs and opportunity costs of the firm is called the normal profit.” Glossary: “Opportunity cost – of some activity is the gain foregone from the second best activity.” |