Economic profits

Question

Economic profits

Quizplus · Accepted Answer

Economic profits serve as an incentive for firms to continue producing in the short run, but in the long run they indicate that there are barriers to entry preventing other firms from entering the market and competing away those profits. Accounting profits do not take into account the opportunity cost of resources used in production, while economic profits do. It is possible for firms to earn economic profits, but not necessary for every firm in a competitive market to do so.

Economic Profits