above-normal profit

above-normal profit

or

excess profit

a PROFIT greater than that which is just sufficient to ensure that a firm will continue to supply its existing product or service (see NORMAL PROFIT). Short-run (i.e. temporary) above-normal profits resulting from an imbalance of market supply and demand promote an efficient allocation of resources if they encourage new firms to enter the market and increase market supply. By contrast, long-run (i.e. persistent) above-normal profits (MONOPOLY or supernormal profits) distort the RESOURCE ALLOCATION process because they reflect the overpricing of a product by monopoly suppliers protected by BARRIERS TO ENTRY.

See PERFECT COMPETITION.

References in periodicals archive ?
It also continues to make above-normal profit margins - expected to be around 27% this year, compared with 7.5% in 2009 - on the products it offers.
As with the sales/cost technique, entrepreneurial profit is implied if the income value exceeds cost; if profit has been included in the cost estimate, above-normal profit is indicated.
This study is inspired by the following observation, an insight many supply chain managers and executives may not have considered: When a company's competitive advantage is speed to market, how can it maintain its normal sales level during a supply chain disruption and at the same time manage to overtake a competitor's market share for normal or above-normal profits?
Not only that, when competitors are also impacted by the disruption, companies positioned to get products to the market will likely gain market share for above-normal profits.
The innovating firm is capturing greater producer surplus (defined by [P.sub.2]EJK) and above-normal profits and, by the same token, other firms are experiencing smaller producer surplus and below-normal profits (suffering economic losses).
If the next-best alternative to Acme Co.'s Better Mousetrap is XYZ Co.'s Mediocre Mousetrap--and if the government doesn't artificially block entry into the mousetrap-manufacturing business--then Acme Co.'s above-normal profits deserve applause and not ridicule.
Indeed, the very efficiencies that LTCM and its competitors brought to the overall financial system gradually reduced the opportunities for above-normal profits. Indeed, LTCM acknowledged this when returning $2 3/4 billion of capital to investors at the end of 1997.
Such competition virtually is guaranteed if the predator is charging monopolistic prices and earning above-normal profits.
Since all above-normal profits would be competed away, prices should be aligned with cost now to remove the incentive for entry.
This challenge is suspect because if a market is competitive, above-normal profits, whatever their origin, should be driven down to a competitive level.