(a) Use the concept of normal profit to explain why a firm might be interested in keeping its business running

even though it may be wearing zero economic profit.

Normal profit is the minimum amount of revenue that a first must receive so that it keeps the business
running (as opposed to shutting down); also defined as the amount of revenue needed to cover implicit costs
including entrepreneurship. Normal profit is included among the economic costs of the firm, and is earned
when economic profit is zero. Profit equals total revenue minus total cost. In the zero-profit equilibrium, the
firm's revenue compensates the owners for the time and money they expend to keep the business going. With
that said, why might firms be interested in keeping their business running even though it may br wearing
zero economic profit?

A normal profit occurs at perfect competition and at an economic equilibrium. This is because competition
between firms eliminates economic profit, which is a firm’s total revenue minus total economic costs
(explicit plus implicit). If economic profit is positive, the firm is earning abnormal profits (when total
revenue is greater than total economic costs), but if it is zero, the firm is earning a normal profit, and lastly if
it is negative, a firm is making a loss. Normal profit allows business owners to compare the profitability of
their work with that of other possible business ventures. When a hotdog business owner decides to expand
his business to include sandwiches, he should obtain estimates on how this revenue and cost structure would
change including any changes to his opportunity costs. After an assessment of the normal and economic
profits, he can make a more informed decision of whether he should expand his business or not.
Additionally. Normal profit can be used to help determine whether an industry or sector of the economy is
improving or declining.

In the long run, when all factors of production are variable, firms make abnormal profit (when total revenue
is greater than total economic costs) in order to attract new firms, increasing supply. Then, the new firms will
stop entering the market once the existing firms make a normal profit (a zero economic profit). Also, if in the
long run, firms are making losses, they will exit the market due to not being able to compete with other
firms, decreasing supply. This will lead the firms to exit the market until the remaining firms make a normal
profit again. So in the long run perfect competition, all firms end up earning a normal profit.

Therefore, with normal profit (zero profit) it does not indicate that a business is not earning money, as
normal profit includes opportunity costs. It is theoretically not possible for a business to operate with zero
economic profit and a normal profit. As normal profit calculation includes evaluating the implicit costs,
which are costs of production involving sacrificed income arising from the use of self owned resources by a
firm, and explicit costs, which are costs of production which involve money payment by a firm to an outsider
in order to acquire a factor of production that is not owned by a firm, it is hard to calculate.