Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Economic profit is always zero
B
Economic profit includes both explicit and implicit costs
C
Economic profit is the same as accounting profit
D
Economic profit is only considered in monopolistic markets
Understanding the Answer
Let's break down why this is correct
Answer
The primary characteristic of economic profit in a competitive market is that it tends to be zero in the long run. This happens because, in a competitive market, many firms are trying to sell similar products. When firms make economic profits, it attracts new businesses to enter the market, which increases supply and usually lowers prices. As prices decrease, the profits of existing firms also decrease until they reach a point where only normal profits are made, meaning they cover all costs but do not earn extra profit. For example, if a bakery is making a lot of money selling cakes, new bakeries might open nearby, leading to more competition and lower prices, eventually reducing the original bakery's profits.
Detailed Explanation
Economic profit takes into account all costs, including what you give up to run your business. Other options are incorrect because Some think economic profit is always zero, but this isn't true; Many confuse economic profit with accounting profit.
Key Concepts
Economic profit
Topic
Economic Profits and Market Dynamics
Difficulty
easy level question
Cognitive Level
understand
Ready to Master More Topics?
Join thousands of students using Seekh's interactive learning platform to excel in their studies with personalized practice and detailed explanations.