Question

From the firm's perspective, is an accounting profit of zero a good result, a bad result, or merely a satisfactory result? Why? Is an economic profit of zero a good result, a bad result, or merely a satisfactory result? Why?

Answer 1

From the firm's point of view, accounting profit turning out to be zero is undesirable. It is bad result for him because it is profit which motivates to be in business. When firm is not getting reward in the form of profit, then it is certainly bad result. Accounting profit is calculated by substracting explicit cost from total revenue. So it must be in positive for firms to continue his business.

If economic profit turns out to be zero, then it is satisfactory result for the firm. Economic profit takes into account both implicit cost and explicit cost. Thus, it offsets the firm's second best alternative, the cost of choosing this business. Firms satisfactorily produce quantity level at which it earns normal economic profit. Positive profit(greater than zero) is the motive of every firm and in that case it is good result. But when economic profit is zero, it is satisfactory for firms because it takes into account all opportunity costs and explicit cost.