Final answer:
In a perfectly competitive industry, earning a normal profit signifies that firms are making zero economic profits as the market price equals the average cost. This is a long-term expectation due to the entry and exit of firms depending on profitability.
Step-by-step explanation:
If all firms in a perfectly competitive industry are earning a normal profit, it indicates that the market price is equal to the average cost at the profit-maximizing quantity of output. In the long run, perfect competition leads to zero economic profits because if firms are earning economic profits, new firms will enter the market, increasing supply, and thus reducing the market price. This process will continue until profits are driven down to zero. Conversely, if firms are incurring losses, firms will exit the market, decreasing supply, and increasing the market price until losses are eliminated.
In summary, normal profit is an economic condition that occurs when the difference between total revenue and total costs is equal to the opportunity cost of capital, resulting in zero economic profit. This is the expected long-term result in a perfectly competitive market, where no single firm can influence the market price due to the high level of competition and homogeneous products.