previously stated, the economist would measure profit as the excess of the revenue derived
from using resources over the opportunity cost of using those resources. Furthermore, as
we have seen in Chapter 5, the economist identifies two types of profit. Normal profit is
the minimum profit that the entrepreneur would expect to earn in an industry to
remain in production. This will vary between industries and is largely dependent on the
level of risk involved in production. If the level of profit falls below the normal level, the
entrepreneur will cease production and leave the industry. This will cause supply of the
product to fall and market price to rise so that the remaining firms in the industry will
once again be earning normal profits and equilibrium is re-established. If profits are
above this level, then abnormal or supernormal profits are being earned. This will
encourage entry into the industry, supply of the product will increase, price will fall and
profits will be competed back down to the normal level. Again equilibrium has been reestablished.
According to economic theory, abnormal profits can only exist in the long
run if there are barriers to entry.