Normal profit

A normal profit is the profit percentage earned by suppliers in a perfectly competitive market. This situation most commonly arises in a commodity market, where goods are undifferentiated. If anyone earns an excessively high profit, new suppliers will enter the market and offer goods at a lower price, thereby driving profits down to the normal profit level. When the suppliers in a market earn an inordinately low profit, some will exit the market, leaving a smaller group of suppliers that can then drive prices back up to the normal profit level.

In a market where suppliers are able to differentiate their products, they have a better opportunity to earn outsized profits. Also, there are usually too few suppliers in a new market; the limited number of competitors leads to high profit levels. Once the market settles into a state of equilibrium, with sales relatively steady, it is more common for suppliers to experience normal profits.