Therefore, it will generate at least the amount of profit that is needed to maintain the factors of production (labor, capital, etc.). This profit is referred to as thenormal profit. Let's go back to our ice cream seller. Alternatives:If he had decided not to set up his business, he could have for instance deposited the $100'000 (i.e. the explicit costs) in a bank account to earn $5'000 in interest. In addition to that, he could have worked for another ice cream producer to earn $45'000 a year. As a result,his opportunity costs add up to = $5000+$45000= $50'000. Economic profit for this case, which will amount to zero ($150'000 - $100'000 - $50'000). This shows that even if economic profits are zero, producers still earn positive accounting profits.They have no reason to go out of business because they receive compensation for their opportunity costs, so there is no alternative that would generate higher profits for them. In a nutshell In the long run equilibrium, firms in competitive markets make zero profits. This may seem odd at a first glance. However, it makes sense because the statement refers to economic profit. It is important to note that unlikeaccounting profit(i.e. revenue minus explicit costs),economic profit(i.e. revenue minus explicit and implicit costs) includes opportunity costs. As a result, according to the zero-profit condition, competitive firms in the long run equilibrium are compensated for their opportunity costs. That means there is no superior alternative for them, so they have no incentive to go out of business. On the contrary, they may still generate substantial accounting profits.
