Question

1. Zero economic profit means that

		The firm breaks down
		The firm makes just normal profits
		The firm must close down
		The firm must raise the price of the commodity
		All of the above

2. Normal Profit is:

		The opportunity cost of capital committed in a certain line of business
		The profit any firm makes in the market
		The minimum capital return required in order to stay in a certain type of business
		(a) and (c)
		All of the above

QUESTION 3

1. Whatâ s the meaning of negative economic profit

   		The firm is losing money
   		Economic costs exceed corporate revenues
   		Economic resources are allocated inefficiently
   		Both A and B
   		None of the above

Answer 1

Economic profit is defined as the difference between the total revenue and the total cost of the firm.

Economic profit = Total Revenue - Total Cost

A firm that earns zero economic profit is said to be earning normal profits. Firms earning more than zero economic profits are said to be earning positive economic profits. Similarly, the firm earning negative economic profits is said to be earning negative economic profits.

1. Zero economic profits mean that the firm makes just normal profits.

2. Normal profits are nothing but the profit any firm makes in the market.

3. Negative economic profit is the case where economic costs are greater than the corporate revenues.