39.5k views
0 votes
G in the long run why will investors keep their money invested in the firm even when profit is zero

User Orbital
by
8.2k points

1 Answer

7 votes

Answer: Economic profit covers implicit costs as well.

Step-by-step explanation:

Economic profit and Accounting profits are two different things. Economic profit accounts for both explicit costs (operating costs) and implicit costs (opportunity costs) while Accounting profit accounts for only explicit costs.

When economic profit is zero therefore, it means that the firm is still covering the implicit costs so they will not be enticed to divest because their opportunity costs are being taken care.

It would therefore be wise to stay invested as this shows that this alternative is the best out of the other alternatives.

User Waxim Corp
by
8.1k points