If average profit is more than normal profit what does it indicate?

Correct answer: The firm is earning super profit

Average profit is the actual or expected average earning of the firm over the relevant years. Normal profit is the return that a similar firm is expected to earn on the capital employed under ordinary business conditions. When average profit is higher than normal profit, the firm is earning something extra because of advantages such as reputation, customer loyalty, efficient management, or a favourable location. This extra earning is called super profit. Therefore, option B is correct. The other choices do not follow: earning super profit does not mean that the firm has no assets, always suffers losses, or must have nil goodwill.

The reasoning is a direct comparison. If average profit is ₹80,000 and normal profit is ₹60,000, then super profit is ₹20,000, calculated as average profit minus normal profit. Thus, the important condition is average profit greater than normal profit. Super profit is also an important basis for valuing goodwill, because it shows the firm’s capacity to earn more than the ordinary return. The conclusion is therefore that the firm is earning super profit, exactly as stated in choice B.