In a competitive market, how does the concept of normal profit relate to long-run adjustments and resource allocation for businesses aiming for sustainability?

In a competitive market, normal profit is the minimum amount of profit that a business needs to earn to stay in operation, covering all its costs, including opportunity costs. When businesses in a market are earning just normal profit, it means they are not making extra profits that would attract new competitors. If a business is making more than normal profit, it signals other businesses to enter the market, which can lead to increased competition and eventually drive profits down to the normal level. This process helps in resource allocation, as resources flow to where they are most valued and can generate normal profit, promoting efficiency and sustainability in the long run. For example, if a bakery is consistently earning normal profit, it signals that the market is balanced, and no new bakeries need to enter, allowing it to focus on sustainable practices like sourcing local ingredients.