What is the definition of normal profit in the context of market dynamics?

Normal profit is the minimum amount of money that a business needs to earn to cover its costs and continue operating. It is not a profit that makes the owner rich; rather, it ensures that the business can pay for its expenses, including wages, rent, and materials, while also providing a return to the owner for their investment and risk. In a competitive market, when a business earns normal profit, it means that it is doing just well enough to stay in the market but is not making extra money to attract new competitors. For example, if a small bakery earns just enough to pay for ingredients, staff, and rent, plus a bit more for the owner’s time, it is making normal profit. This concept is important because it helps us understand how businesses decide to enter or leave a market based on their ability to earn at least normal profit.