What is normal profit and in what way is economic profit different from accounting profit?

Normal profit is a component of (implicit) costs, and not a component of business profit at all. It represents the opportunity cost of using the entrepreneur’s time and resources in one particular business, relative to the returns from different uses of the entrepreneur’s time and resources. In other words, it is the level of profit that just keeps the entrepreneur in this line of business and no other.

Economic profit is different from accounting profit in that it takes into account both explicit and implicit costs, while accounting profit only considers explicit costs. Explicit costs are out-of-pocket costs for a firm - for example, payments for wages and salaries, rent, or materials. Implicit costs, on the other hand, represent the opportunity cost of using resources already owned by the firm.

So, while accounting profit would subtract explicit costs from total revenue to calculate profit, economic profit subtracts both explicit and implicit costs from total revenue. This means that economic profit provides a fuller picture of profitability by considering all costs, not just those that were directly paid out.