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Why Is Zero Economic Profit Called "Normal"?

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In economic analysis, any amount of profit earned above zero is considered "above normal" because (choose one):
1. normally firms are supposed to earn zero profit.
2. this would indicate that the firm's revenue exceeded both its accounting and opportunity cost.
3. this would indicate that the firm was at least earning a profit equal to its opportunity cost.
4. this would indicate that the firm's revenue exceeded its accounting cost.

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Solution Preview

The answer is 2. In the long run, a firm stays in an industry if it could not earn a greater return by switching to another industry, i.e. its opportunity cost does not ...

Solution Summary

This solution explains the meaning of "economic profit" and why an economic profit of zero is considered "normal".

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