Why Business Firm Continue Their Business At Zero Economic Profit? (Solution)

Because of the presence of positive accounting profit, the enterprises are able to continue operations even though their economic profit is zero. To account for this difference, the only explicit cost will be removed from the entire revenue for computing accounting profit. As a result, the company would generate a positive accounting profit in order to remain in operation.

Why do firms continue to operate with zero economic profit?

Businesses that operate in a perfectly competitive market can only make profits or incur losses in the short term. Profits and losses are eliminated in the long term due to the fact that an unlimited number of enterprises are generating infinitely-divisible, undifferentiated items.

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Does a firm continue to produce with zero economic profit?

A firm’s economic earnings might be positive, negative, or zero in the short run, depending on the circumstances of the business. In the long run, economic profits will be null and void. Unless a firm’s price surpasses its average variable cost in the near run, it should continue to function even if it has a negative economic profit.

When economic profits are zero for a firm it means that?

When a company generates zero economic profit, it signifies that the company is able to cover the complete opportunity costs associated with its resources.

Why some firms might be able to continue to make an economic profit in the long run?

In the long term, all of the components of production are subject to change. Furthermore, unfettered entrance and exit, as well as complete resource mobility, are two of the assumptions made by businesses operating in perfect competition. Enterprises that generate anomalous profits will, in the long term, attract other firms, which will join the market freely as a result of the two assumptions already established.

Why do firms continue operating even when they are making losses?

The typical reaction is that a manager may be able to continue operating a firm in the short term even if the company is making a loss in the long run. The reason for this is that even if a company ceases operations, it continues to suffer its fixed expenses, which are the costs connected with the fixed inputs.

Why would a competitive firm stay in business if it made zero economic profit quizlet?

A company with zero economic earnings is nonetheless producing accounting profits, according to the definition. The fact that economic profits take into consideration economic costs means that economic profits will be less than accounting profits. If a company is able to pay its opportunity cost, it will be able to continue operations even if its economic earnings are zero.

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Why do perfectly competitive firms make zero economic profit in the long run quizlet?

Long-term economic profit in a completely competitive business is zero for the enterprises that participate in it. More firms will enter the market, causing the supply curve to shift to the right, which will cause prices to fall until economic profits are zero, as shown in the chart below.

What condition is necessary for zero economic profit?

A situation in which a firm’s entire revenue equals the sum of its explicit and implicit expenses is known as a zero economic profit condition (ZEP). In other words, it occurs when the income of a business minus its explicit expenses minus its implicit costs equals the revenue of another firm.

What is the difference between zero accounting profit and zero economic profit?

When it comes to accounting profit, what is the difference between zero accounting profit and zero economic profit? Zero accounting profit takes into account opportunity costs, however zero economic profit does not take into account opportunity costs. If a company has no accounting earnings, it is said to be in the negative financial position.

When economic profits in an industry are zero quizlet?

When economic earnings in an industry are zero, it indicates that enterprises are performing as well as they might be expected to perform in other marketplaces.

Why can a firm in monopolistic competition make an economic profit only in the short run?

In the short run, a monopolistic competitive business can benefit from its monopoly-like pricing, but in the long run, the effect of the firm’s monopoly-like pricing will induce a decline in demand. In order to remain competitive, enterprises must distinguish their products, which increases the average total cost of goods sold (ATC).

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Why do firms enter an industry when they know that in the long run economic profit will be zero under what conditions will a firm exit a market explain?

Why do companies enter a market when they are aware that they will make little money in the long run? Firms enter an industry when they hope to make a return on the investment they have made. When there are no economic profits in the long term, regular returns to the factors of production, such as the labor and money invested by the owners of enterprises, are achieved.

Do you think that the economic profit increase when more firms enter an industry?

In the long run, the existence of economic profits in a specific industry attracts new enterprises to that industry. New businesses join the market, causing the supply curve to move to the right, causing prices to drop and earnings to decrease with them. The supply curve swings to the left, raising the price and lowering the amount of money lost.

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