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A purely competitive firm is precluded from making economic profit in the long run because?
it is a price taker
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).
Will economic profit exceed accounting profit?
Economic profit will never exceed accounting profit. The accountant will calculate total cost using only explicit costs (basically a transfer of money) that the firm makes. On the other hand, economists will factor in opportunity cost as well. For example, if a person takes their life's savings and invests it in a new company, the interest that the money could be making will be an opportunity cost for the firm, as well as the salary they could be earning at a different firm. This all means that economists will calculate higher costs, which means that economic profit is lower than accounting profit.
Is economic profit a cost of production?
Economic profits are not costs of production since the entrepreneur does not require the gaining of an economic profit to keep the firm operating. In economics, costs are whatever is required to keep a firm operating.
Why might a firm continue to operate when they are not making profits at the moment?
Profits can fluctuate. Just because a firm is not making a profit at the moment does not mean that they won't be making a profit in the future. Hope springs eternal.
A purely competitive firm is precluded from making economic profit in the long run because?
it is a price taker
What is the Difference between Normal profit and Economic Profit?
In economics, normal profit is often called the break-even point. It is the level of profit where all of the costs of your business, including the salary of the CEO, are covered. When a firm has normal profit but not economic profit, the total revenue of the firm equals the total cost of the firm. However, if a firm has economic profit, total revenue is higher than total cost.
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).
Will economic profit exceed accounting profit?
Economic profit will never exceed accounting profit. The accountant will calculate total cost using only explicit costs (basically a transfer of money) that the firm makes. On the other hand, economists will factor in opportunity cost as well. For example, if a person takes their life's savings and invests it in a new company, the interest that the money could be making will be an opportunity cost for the firm, as well as the salary they could be earning at a different firm. This all means that economists will calculate higher costs, which means that economic profit is lower than accounting profit.
Is economic profit a cost of production?
Economic profits are not costs of production since the entrepreneur does not require the gaining of an economic profit to keep the firm operating. In economics, costs are whatever is required to keep a firm operating.
Why might a firm continue to operate when they are not making profits at the moment?
Profits can fluctuate. Just because a firm is not making a profit at the moment does not mean that they won't be making a profit in the future. Hope springs eternal.
The differences between goal of a firm and profit maximization?
A goal of firm isn't always profit driven, it can be any cause. Profit maximization is revenue driven, making more money is it focus.
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.
When a firm is earning positive economic profit?
When a firm is earning positive economic profit, it means that its total revenue exceeds its total costs, including both explicit and implicit costs. This indicates that the firm is not only covering its operating expenses but also generating a return that exceeds what it could have earned in the next best alternative. Positive economic profit often signals that the firm has a competitive advantage or is operating efficiently in its market. Additionally, it can attract new entrants to the market, potentially leading to increased competition over time.
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.
Why can a firm in monopolistic competition make an economic profit only in the short run?
A firm in monopolistic competition can make an economic profit only in the short run because in the long run, other firms can enter the market and offer similar products, increasing competition and driving down prices, which reduces the firm's ability to maintain high profits.
