A firm operating in a perfectly competitive industry will continue to operate if it earns zero economic profits because it is likely to be earning positive accounting profits.

Question

Quizplus · Accepted Answer

Zero economic profit means that the firm is covering all its costs, including opportunity costs. Accounting profits only consider explicit costs, so if a firm is covering its opportunity and explicit costs (zero economic profit), it is likely earning positive accounting profits by not accounting for opportunity costs.

A Firm Operating in a Perfectly Competitive Industry Will Continue