Asked by Chiara Houston on Jul 28, 2024
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A firm operating in a perfectly competitive industry will shut down in the short run if its economic profits fall to zero because it is likely to be earning negative accounting profits.
Economic Profits
The difference between the total revenue earned by a business and the total costs (both explicit and implicit) of all inputs used, representing the additional gain over and above the opportunity costs.
Accounting Profits
The difference between total revenue and explicit costs; essentially the bottom line of a company's income statement.
Perfectly Competitive
A market structure characterized by a large number of small firms, homogenous products, and free entry and exit, where no single firm has market power.
- Acquire knowledge about the concepts of economic profit and accounting profit, including their impact on the decision-making process of companies.
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Learning Objectives
- Acquire knowledge about the concepts of economic profit and accounting profit, including their impact on the decision-making process of companies.
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