Why firms earn zero profit in perfectly competitive markets.
Not what you're looking for?
Explain why a firm in a perfectly competitive market would choose to remain in business, if its profit is zero at equilibrium. Illustrate any theories or concept you decide to use to answer this question with numerical examples.
The analysis of zero profit conditions showed that firms might remain in business for a time despite being unprofitable. This situation is possible particularly for firms with high fixed capital costs. The long run price must cover out of pocket costs such as labour, materials, equipment, taxes, and other expense, along with opportunity costs such as competitive return on the owner's invested capital.
Purchase this Solution
Solution Summary
The solution contains an explanation for why in the long run firms earn zero economic profit. Economic profits are distinguished from accounting profits. The break even point, shutdown point, and long run vs. short run decisions are discussed as well.
Solution Preview
Explain why a firm in a perfectly competitive market would choose to remain in business, if its profit is zero at equilibrium. Illustrate any theories or concept you decide to use to answer this question with numerical examples.
When the firms costs are calculated they include opportunity costs. So, when a firm is at the bottom of its ATC and charging a ...
Purchase this Solution
Free BrainMass Quizzes
Pricing Strategies
Discussion about various pricing techniques of profit-seeking firms.
Economics, Basic Concepts, Demand-Supply-Equilibrium
The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.
Basics of Economics
Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.
Economic Issues and Concepts
This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.
Elementary Microeconomics
This quiz reviews the basic concept of supply and demand analysis.