What does it mean when a firm earns zero economic profit? Should it shut down? Use...

What does it mean when a firm earns zero economic profit? Should it shut down? Use the concepts of direct and imputed costs in your answer.

Expert Solution

Answer - When the business earns normal profit , that is it is in the condition of no profit no loss then the firm is said to earn normal profits. In this condition the efficiency of the resources is at its best.

The firm should not shut down at this point because it is well recovering its direct and imputed cost with the help of revenues and is running at MR = MC. Hence all the expenses are being recovered.

The firm shuts down when it is not able to recover its variable costs .

Rahul Sunny answered 2 years ago

Distinguish between shutdown and exit. When does a profit-maximizing competitive firm decide to shut down? When...

Distinguish between shutdown and exit. When does a profit-maximizing competitive firm decide to shut down? When does it decide to exit a market? Explain your answer.

Explain the difference between accounting and economic profit. What does zero economic profit mean

The shut-down price is: option A:the price at which economic profit is zero. option B:the minimum...

The shut-down price is: option A:the price at which economic profit is zero. option B:the minimum of the AVC curve. option C: the intersection of the MC and ATC curves. option D: the minimum of the AFC curve.

A profit-maximizing firm in monopolistic competition should shut down in the short run if: a. price...

A profit-maximizing firm in monopolistic competition should shut down in the short run if: a. price is more than average total cost. b. price is less than average variable cost. c. marginal revenue is equal to marginal cost. d. marginal revenue is less than price. e. price is less than average fixed cost. The term “strategy” in terms of game theory refers to: a. the tendency for collusive firms to generate normal profits. b. each firm’s decision to charge a...

1. Does earning a normal profit or when economic profit = 0 mean a firm is...

1. Does earning a normal profit or when economic profit = 0 mean a firm is not earning a profit? Explain. 2. Why can there be excess profits in the short run but not in the long run? Thank you!

A profit-maximizing firm should shut down in the short run if: Answer choices: price is greater...

A profit-maximizing firm should shut down in the short run if: Answer choices: price is greater than marginal cost. total revenue is less than total variable cost. the firm is earning less than a normal rate of return. the firm is not able to cover its overhead expenses. marginal cost is higher than average cost.

18. A firm should shut down in the short run if:

18. A firm should shut down in the short run if: a. price is greater than average variable costs b. average fixed costs are greater than marginal revenue c. price is less than average variable costs d. total costs are greater than fixed costs 19. A firm is said to be making profits when: a. marginal revenue exceeds marginal costs. b. marginal revenue exceeds variable costs. c. average revenue exceeds average total...

Question

What does it mean when a firm earns zero economic profit? Should it shut down? Use...

Solutions

Expert Solution

Related Solutions