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If the economic profit generated by a firm is zero and its implicit costs are greater than zero, then rev: 06_26_2018 Multiple Choice accounting profit is also zero. accounting profit is less than zero. accounting profit is greater than zero. new firms will enter the industry.

User FireBand
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Final answer:

If the economic profit generated by a firm is zero and its implicit costs are greater than zero, then accounting profit is also zero.

Step-by-step explanation:

A firm's economic profit is zero when its implicit costs are greater than zero and its accounting profit is also zero. This means that the firm is earning exactly what its resources could earn in their next best use. It's important to note that zero economic profit does not necessarily mean zero accounting profit, as accounting profit only considers explicit costs.

In the long run, if a firm is earning positive economic profits, new competitors will enter the industry, which will reduce the original firm's demand and marginal revenue curves. As a result, economic profits will be driven down to zero as competing firms compete for market share.

Therefore, the correct answer is: that accounting profit is also zero.

User Peter Wooster
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6 votes

Final answer:

When a firm has zero economic profit and positive implicit costs, the accounting profit is greater than zero. Economic profit accounts for both explicit and implicit costs, whereas accounting profit only considers explicit costs.

Step-by-step explanation:

In the context of business economics, when a firm generates zero economic profit, this implies that the firm's total revenues are equal to the sum of its explicit and implicit costs. However, when we consider accounting profit, which only takes into account the explicit costs of doing business, the scenario is different. Specifically, if the firm's economic profit is zero and implicit costs are greater than zero, the accounting profit must be greater than zero. This is because implicit costs, such as the opportunity cost of the owner's time, are not deducted when calculating accounting profit.

When new firms enter the market, the increased competition typically leads to a reduction in the prices firms can charge, which decreases the economic profits of individual firms. Consequently, firms will enter the market until economic profits reach zero; however, this does not necessarily mean that accounting profits are zero. In a long-run equilibrium for monopolistically competitive markets, firms earn zero economic profit, but they can still earn positive accounting profits.

User WineSoaked
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