In a competitive market, positive accounting profits will encourage entry by more firms until the marginal firm has zero accounting profit.

Question

Quizplus · Accepted Answer

In a competitive market, positive economic profits, not accounting profits, encourage entry by more firms until economic profits are zero. Accounting profits do not account for opportunity costs, so they can be positive even when economic profits are zero.

In a Competitive Market, Positive Accounting Profits Will Encourage Entry