What happens when a firm is making an economic profit?

When a firm is making an economic profit, it is earning more than just the minimum amount needed to cover its total costs, including both explicit and implicit costs. This indicates that the firm is effectively utilizing its resources and has a competitive advantage in the market. Economic profits attract new entrants to the industry, as other firms seek to capitalize on the profitable opportunities, potentially leading to increased competition and driving profits down over time. Ultimately, sustained economic profits may signal to the market that the firm has a unique capability or resource that is not easily replicated.