When Economic Profit = 0, then what does this mean? 1-This means that all firms are...

When Economic Profit = 0, then what does this mean?

1-This means that all firms are operating at a loss. The best thing to do next would be to raise prices to cover the losses.
2-There is no motivation for the firms to leave the industry and there is no motivation for new firms to enter the industry.
3-Everyone run for the exit doors! Everyone in the industry is crazy if they don’t get out of an industry like this as soon as they can.
4-None of the answers listed are correct.

Expert Solution

Option 2 is the answer.
There is no motivation for the firms to leave the industry and there is no motivation for new firms to enter the industry.
Economics profit is the difference between the revenue obtained by selling a product and the cost of all its inputs and opportunity costs.
When Economic Profit is equal to zero, it is said to have normal profit. It happens when explicit costs and implicit costs are equal.

Rahul Sunny answered 2 years ago

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