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What is zero economic profit?
Stagnation or zero growth as long as they aren't losing money.
Should a company go out of business if they are making zero economic profit?
no
What is the significance of the zero profit condition in economic theory?
The zero profit condition in economic theory is significant because it helps determine the equilibrium price and quantity in a competitive market. When firms earn zero profit, it indicates that resources are being allocated efficiently and that the market is in equilibrium. This condition also ensures that resources are being used in the most productive way, leading to overall economic efficiency.
What factors contribute to a firm earning zero economic profit?
A firm may earn zero economic profit due to factors such as high competition, low barriers to entry, high production costs, and pricing strategies that do not cover all expenses.
Would a firm earning zero economic profit continue to produce in the long run?
No, a firm earning zero economic profit would not continue to produce in the long run because it would not be covering all its costs, including opportunity costs.
Why accounting profit is higher than economic profit?
First of all, we need to understand what is explicit cost and implicit cost. Explicit cost mean real expenses, while implicit cost mean opportunity cost. In accounting profit, we only minus explicit cost, while in economic profit we minus explicit cost and implicit cost. therefore accounting profit is higher than economic profit.
Is economic profit always less than accounting profit?
No economic profit is not always less than accounting profit; However, if accounting profit is less than economic profit the business would exit the industry.
Can a monopolistic competitive firm earn long run profit?
In the long run, if a firm is making a profit more firms will enter. This will cause profit to drop. Firms will eventually drop out because of this and economic profit will makes it way to zero(a result of the invisible hand).
Is economic profit equal to accounting profit?
no
Why will a perfectly competitive firm not earn an economic profit in the long run?
A perfectly competitive firm will not earn an economic profit in the long run because in a perfectly competitive market, there are many firms selling identical products, leading to price competition. This competition drives prices down to the point where firms only earn enough revenue to cover their costs, resulting in zero economic profit.
Differentiate between normal profit and economic profit?
Economic profit is when revenue exceeds total cost of inputs. Normal profit, on the other hand, is net profit less costs.
What is the economic system based on private ownership investment and profit?
Capitalism is the economic system based on private ownership and profit.
