If Firm A is making zero economic profits,
A) Firm A is also making negative accounting profits.
B) Firm A is breaking even when opportunity cost is taken into consideration.
C) other firms want to enter the market.
D) Firm A wants to leave the market.
E) Firm A wants to shut down in the short run.

Question

Quizplus · Accepted Answer

Zero economic profits mean that the revenue earned by the firm covers all of its costs including its opportunity cost. Zero economic profits are not the same as zero accounting profits, which can be positive if implicit costs (such as opportunity cost of using the owner's time and resources) are not taken into consideration. Therefore, the firm is breaking even when opportunity cost is taken into consideration, as it is covering all its costs including the opportunity costs.

If Firm a Is Making Zero Economic Profits