A firm that makes zero economic profits
A)Must eventually go bankrupt and exit the industry.
B)Does not cover its variable costs and should shut down in the short run.
C)Incurs an accounting loss if fixed costs are greater than variable costs.
D)Covers all its costs,including a provision for normal profit.

Question

Quizplus · Accepted Answer

A firm that makes zero economic profits covers all its costs, including a provision for normal profit. This means that it is earning enough to cover both its explicit and implicit costs, but not making any extra profit above and beyond the opportunity cost of the resources used in production. While it may not be maximizing profits, it is not in danger of bankruptcy or having to shut down in the short run. It may still incur an accounting loss if fixed costs are greater than variable costs, but this is not necessarily indicative of the firm's overall profitability.

A Firm That Makes Zero Economic Profits